Up 82% in 2024, could NatWest shares keep rising into 2025?

This yr has been a superb one for shareholders of NatWest (LSE: NWG), the UK banking big. NatWest shares have soared 82% to date in 2024.

On prime of that they provide a 4.4% yield at right this moment’s worth. Which means that, if an investor had purchased the inventory in the beginning of the yr earlier than that 82% worth improve, their dividend yield would at the moment be shut to eight%.

But regardless of a storming 2024, the share nonetheless seems to be low cost on some measurements.

For instance, the price-to-earnings ratio is lower than 8.

In the meantime, the price-to-book ratio (a typical valuation approach for banks) can be properly beneath 1, suggesting the shares might nonetheless provide good worth.

So, what’s going on – and will the inventory actually provide traders good worth even now?

Nice yr for banks

NatWest has had an outstanding yr on the inventory market. However it isn’t alone amongst banking friends in that regard.

Two of the opposite strongest performers within the FTSE 100 this yr have been Barclays (up 70% to date this yr) and London-based rising markets-focused financial institution Customary Chartered (49% greater now than in the beginning of the yr).

So, whereas NatWest has been the cream of the crop in terms of share worth improve, clearly the Metropolis has taken a shine to banking shares this yr.

That displays a stronger sense because the yr has gone on that the worldwide economic system is in truthful form and will keep that approach, or get higher. That sometimes means much less threat of mortgage defaults, which is sweet for financial institution income.

I’m not satisfied banks could have an excellent 2025

However whereas that has been the sentiment, how precisely does it replicate what we’ve got seen on this geopolitically unstable yr, not to mention what may occur in 2025 and past?

NatWest for instance, I’m not satisfied its firm efficiency this yr has been stellar.

Up to now we all know the way it did within the first 9 months. Complete earnings fell 3%. Working bills inched upwards. Revenue from persevering with operations was 0.3% decrease than within the prior yr interval.

The corporate’s post-tax revenue within the interval grew – however that largely displays decrease tax prices than within the prior yr interval.

I don’t assume that may be a unhealthy efficiency. However it’s pretty unremarkable for my part. It means that the corporate is already struggling to search out development drivers in a sluggish economic system. If the economic system worsens in 2025, defaults might rise and income fall. I see that as a sizeable threat for banks together with NatWest.

The valuation doesn’t look costly – for now

Nonetheless, whereas pre-tax income from persevering with operations kind of stagnated within the first 9 months, they nonetheless got here in at £1.2bn. That isn’t to be sneezed at.

With a powerful model, massive buyer base and confirmed enterprise mannequin, the present valuation for the shares doesn’t look overblown to me – so long as the economic system doesn’t get markedly worse.

I see the economic system as a threat although. If it bites badly into earnings, right this moment’s valuation might come to look a lot much less enticing.

So, for now, I’ve no plans to purchase any NatWest shares for my portfolio.