Shore Capital rates NatWest a 'buy', but upside limited

NatWest reported a pre-tax profit of £1.33bn for the first three months of the year, down 27% year-on-year but £68m ahead of consensus forecasts, representing a beat of 5%. This was due to positive changes in net interest income, impairments, and litigation and conduct charges.

Reported earnings per share of 10.5p beat consensus by 9%, tangible net asset value per share of 302p beat consensus by 9p, while reported return on tangible equity of 14.2% beat consensus by 1.3 percentage points.

However, the fact that NatWest's board has chosen to keep full-year guidance unchanged "may disappoint investors following a recent strong run in the shares", said Shore Capital analyst Gary Greenwood.

He pointed out that the stock has surged 32% so far this year – as of Thursday's closing price of 290p – outperforming the FTSE All-Share Index by 28%

Shore Capital's fair-value estimate for the shares is 315p, which implies just 9% upside from Thursday's price – though Friday morning's 3.4% gain to 299.7p reduces that somewhat.

"NatWest currently offers the least upside to fair value of the large UK banks. We retain a 'buy' recommendation for now, but we will review the appropriateness of this in light of any share price reaction and further commentary on the results call," Greenwood said.