Picture supply: Getty Photographs
The outcomes are in and this 12 months’s finest performing FTSE 100 inventory is excessive avenue big NatWest Group (LSE: NWG).
Its shares have climbed 88% to date in 2024 and as soon as dividends are included, the overall return is a wonderful 101%.
Sadly, I selected to realize my publicity to the banking sector by way of Lloyds Banking Group, and for some time, I used to be doing properly too. Then Lloyds was sideswiped by the motor finance mis-selling scandal, whereas NatWest powered on.
Susannah Streeter at Hargreaves Lansdown, which compiled the information, mentioned because the 12 months attracts to an in depth the NatWest share worth remains to be “on a roll, with third-quarter buying and selling beating expectations”.
NatWest shares are one in 100 this 12 months
She added: “Default charges remained at secure and low ranges, and regardless of pessimism surrounding the UK Price range, an improve within the UK’s progress prospects for 2025 bodes effectively for banks delicate to the broader financial temperature.”
Personally, I’m extra involved about UK progress prospects. Particularly after this morning’s Workplace for Nationwide Statistics knowledge, which confirmed the UK economic system shrinking by 0.1% in October, matching September’s 0.1% drop.
Streeter mentioned NatWest’s earnings steering has been coming in larger with rates of interest anticipated to remain larger for longer. “That’s constructing in improved underlying efficiency because it retains web earnings margins extra sturdy.”
Increased rates of interest ought to help NatWest’s web curiosity margins, the distinction between what it pays savers and costs debtors. There’s a hazard it’s going to improve mortgage impairments, although, as long-term fixes and owners are pressured to remortgage at larger charges. Two-year fixes are again above 5%.
Streeter says NatWest has made “continued progress in holding prices beneath management” and can be “a giant beneficiary of its giant structural hedge”, designed to clean out web curiosity earnings.
She mentioned: “The way in which the hedge has been designed means it’s going to be rolling onto higher charges within the coming years from a number of the lowest charges within the sector, it’ll be one other sector tailwind to get pleasure from.”
I do love a constructive sector pattern and hopes it sweeps my Lloyds shares alongside, too. However ought to I scrape collectively some money and diversify into NatWest?
Can this FTSE 100 inventory outperform twice?
I’m instinctively cautious of shopping for a inventory after it’s had a blockbuster run. My fear is I overpay and find yourself struggling a right away loss. NatWest shares don’t precisely look costly, buying and selling at 8.47 occasions 2024 earnings. Nonetheless, low P/Es are routine throughout the large banks, so I’m undecided how a lot I can depend on it.
The value-to-book ratio could also be a greater information. A 12 months in the past most FTSE 100 banks had a P/B of round 0.4 or 0.5 occasions. Right now, NatWest is as much as 0.97. That’s solely a whisker away from the determine of 1 that’s seen as truthful worth.
The 18 analysts providing one-year share worth forecasts have produced a median goal of 463.3p. If right, that will be a rise of 14.07% from in the present day (not 88% sadly). Mixed with a forecast yield of 5.08% that implies a possible complete return of practically 20%.
However I received’t purchase NatWest although. We’ve had our enjoyable. As an alternative, I’ll maintain onto my Lloyds shares, and hope they make up misplaced floor in 2025
