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NatWest Group plc 20-F Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

NatWest Group plc

Filing date:

02/21/2025

TLDR:

NatWest Group’s 2024 performance reflects a solid financial position with some vulnerabilities, including an increase in the cost:income ratio. The company faces risks related to economic uncertainties, regulatory compliance, and climate change, but also has opportunities for growth in climate and sustainable funding and AUMA.

ELI5:

NatWest, a big bank, did well overall in 2024, but they need to watch their expenses and be careful about economic changes and new rules. They have a chance to grow by investing in green projects and managing money for wealthy clients.

Accession #:

0001104659-25-016029

Published on

Analyst Summary

  • Total Income decreased slightly by 0.3% to £14.703 billion.
  • Net Interest Margin (NIM) increased marginally by 1 basis point to 2.13%.
  • Cost:Income Ratio increased to 53.4% (excluding litigation and conduct costs).
  • Loan Impairment Rate decreased from 15bps to 9bps.
  • CET1 Ratio increased to 13.6%.
  • Climate and Sustainable Funding and Financing: £31.5 billion in 2024.
  • Assets Under Management and Administration (AUMA) increased by 19.9% to £48.9 billion.

Opportunities and Risks

  • Economic and Political Risks: Continued uncertainties in the UK and global markets.
  • Financial Resilience Risk: Potential failure to meet targets or manage capital effectively.
  • Operational and IT Resilience Risk: Vulnerability to cyberattacks.
  • Climate and Sustainability-Related Risks: Challenges in achieving climate ambitions.
  • Growth in Climate and Sustainable Funding and Financing: Demonstrates a commitment to sustainability.
  • Strong AUMA Growth: Reflects the strength of the Private Banking segment.

Potential Implications

Company Performance

  • Increase in the cost:income ratio indicates potential inefficiencies.
  • Reliance on post-model adjustments for ECL suggests potential model limitations.
  • Growth in climate and sustainable funding and financing indicates a commitment to sustainability and potential for future growth.
  • Strong AUMA growth reflects the strength of the Private Banking segment and potential for increased fee income.

NatWest Group plc – 20-F Filing Report (2024)

Executive Summary

This report analyzes NatWest Group plc’s 20-F filing for the fiscal year ended December 31, 2024. The analysis focuses on key financial performance indicators, risk factors, and management’s discussion and analysis (MD&A) to assess the company’s financial health and future prospects. Overall, NatWest Group demonstrates a strong performance with some areas of concern regarding economic uncertainties and regulatory compliance. A ‘Hold’ recommendation is appropriate at this time, pending further observation of these factors.

Company Overview

NatWest Group plc is a UK-based banking and financial services company. The company operates through various segments, including Retail Banking, Private Banking, and Commercial & Institutional. The 20-F filing provides an overview of the company’s performance, strategy, and risk profile.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights a strong performance in 2024, with a return on equity of 11.9% and a RoTE of 17.5%. They emphasize cost discipline and stable levels of default. However, the MD&A also acknowledges the impact of economic uncertainties and the shift in deposit balance mix. The tone is generally positive, but with cautious recognition of external challenges.

Financial Statement Analysis

Key Ratios and Trends

  • Total Income: Decreased slightly by 0.3% to £14.703 billion.
  • Net Interest Margin (NIM): Increased marginally by 1 basis point to 2.13%.
  • Cost:Income Ratio: Increased to 53.4% (excluding litigation and conduct costs).
  • Loan Impairment Rate: Decreased from 15bps to 9bps.
  • CET1 Ratio: Increased to 13.6%.

Balance Sheet: Total assets increased by 2.2% to £708.0 billion, driven by increases in loans to customers and other financial assets.

Uncommon Metrics

  • Climate and Sustainable Funding and Financing: £31.5 billion in 2024, indicating a commitment to sustainability.
  • Assets Under Management and Administration (AUMA): Increased by 19.9% to £48.9 billion, reflecting growth in Private Banking.

Red Flags

  • Increase in the cost:income ratio, indicating potential inefficiencies.
  • Reliance on post-model adjustments for ECL, suggesting potential model limitations.

Risk and Opportunity Assessment

Risks

  • Economic and Political Risks: Continued uncertainties in the UK and global markets, including inflation, interest rates, and geopolitical developments.
  • Financial Resilience Risk: Potential failure to meet targets, prudential regulatory requirements, or manage capital effectively.
  • Operational and IT Resilience Risk: Vulnerability to cyberattacks and reliance on complex IT systems.
  • Climate and Sustainability-Related Risks: Challenges in achieving climate ambitions and targets, limitations in accessing accurate climate data, and increasing regulatory scrutiny.

Opportunities

  • Growth in Climate and Sustainable Funding and Financing: Demonstrates a commitment to sustainability and potential for future growth.
  • Strong AUMA Growth: Reflects the strength of the Private Banking segment and potential for increased fee income.

Conclusion and Actionable Insights

NatWest Group’s 2024 performance reflects a solid financial position, but with some vulnerabilities. The increase in the cost:income ratio and reliance on post-model adjustments for ECL are areas of concern. The company faces significant risks related to economic uncertainties, regulatory compliance, and climate change. However, the growth in climate and sustainable funding and financing and AUMA presents opportunities for future growth.

Recommendation: Hold. Monitor the company’s progress in addressing the identified risks and capitalizing on the opportunities. Pay close attention to future filings for updates on regulatory compliance, climate-related initiatives, and management’s strategies for improving efficiency and profitability.

NatWest Group Financial Analysis – 2024

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin: Not applicable for financial institutions.
  • Operating Profit Margin:

    • Ratio/Metric: £6,195m / £14,703m = 42.1%
    • Trend: (£6,195m / £14,703m) – (£6,178m / £14,752m) / (£6,178m / £14,752m) = 42.1% – 41.9% / 41.9% = 0.5%
    • Industry: Compared to other large UK banks, this operating margin is within a reasonable range, reflecting the competitive landscape and regulatory environment.
  • Net Profit Margin:

    • Ratio/Metric: £4,519m / £14,703m = 30.7%
    • Trend: (£4,519m / £14,703m) – (£4,394m / £14,752m) / (£4,394m / £14,752m) = 30.7% – 29.8% / 29.8% = 3.0%
    • Industry: This net profit margin is competitive within the UK banking sector, indicating effective cost management and revenue generation.
  • Return on Assets (ROA):

    • Ratio/Metric: £4,811m / £708.0bn = 0.68%
    • Trend: (£4,811m / £708.0bn) – (£4,632m / £692.7bn) / (£4,632m / £692.7bn) = 0.68% – 0.67% / 0.67% = 1.5%
    • Industry: This ROA is typical for a large bank, reflecting the scale of assets required for operations.
  • Return on Equity (ROE):

    • Ratio/Metric: £4,519m / £39,378m = 11.5%
    • Trend: (£4,519m / £39,378m) – (£4,394m / £37,188m) / (£4,394m / £37,188m) = 11.5% – 11.8% / 11.8% = -2.5%
    • Industry: This ROE is within the expected range for a major European bank.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Ratio/Metric: Basic EPS = £4,519m / 8,331.144875m = 54.2p, Diluted EPS = £4,519m / (8,331.144875m+66m) = 53.7p
    • Trend: Basic EPS = (54.2p – 47.9p) / 47.9p = 13.2%, Diluted EPS = (53.7p – 47.7p) / 47.7p = 12.6%
    • Industry: The EPS is a key indicator for investors and is comparable to peers in the UK banking sector.

Liquidity

  • Current Ratio:

    • Ratio/Metric: £707,985m / £668,607m = 1.06
    • Trend: (£707,985m / £668,607m) – (£692,673m / £655,485m) / (£692,673m / £655,485m) = 1.06 – 1.06 / 1.06 = 0.0%
    • Industry: A current ratio above 1 indicates sufficient liquidity to cover short-term liabilities.
  • Quick Ratio (Acid-Test Ratio): Not possible to calculate accurately without a detailed breakdown of inventories (which are not applicable for a bank).
  • Cash Ratio:

    • Ratio/Metric: £92,994m / £668,607m = 0.14
    • Trend: (£92,994m / £668,607m) – (£104,262m / £655,485m) / (£104,262m / £655,485m) = 0.14 – 0.16 / 0.16 = -12.5%
    • Industry: This cash ratio reflects the bank’s ability to meet its short-term obligations with its most liquid assets.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Ratio/Metric: £668,607m / £39,378m = 17.0
    • Trend: (£668,607m / £39,378m) – (£655,485m / £37,188m) / (£655,485m / £37,188m) = 17.0 – 17.6 / 17.6 = -3.4%
    • Industry: This ratio indicates the extent to which the bank is using debt to finance its assets.
  • Debt-to-Assets Ratio:

    • Ratio/Metric: £668,607m / £707,985m = 0.94
    • Trend: (£668,607m / £707,985m) – (£655,485m / £692,673m) / (£655,485m / £692,673m) = 0.94 – 0.95 / 0.95 = -1.1%
    • Industry: This ratio shows the proportion of the bank’s assets that are financed with debt.
  • Interest Coverage Ratio (Times Interest Earned):

    • Ratio/Metric: £6,195m / £13,912m = 0.45
    • Trend: (£6,195m / £13,912m) – (£6,178m / £9,977m) / (£6,178m / £9,977m) = 0.45 – 0.62 / 0.62 = -27.4%
    • Industry: A lower ratio indicates a higher debt burden relative to operating profit.

Activity/Efficiency

  • Inventory Turnover: Not applicable for financial institutions.
  • Days Sales Outstanding (DSO): Not directly applicable for a bank.
  • Days Payable Outstanding (DPO): Not directly applicable for a bank.
  • Asset Turnover:

    • Ratio/Metric: £14,703m / £708.0bn = 0.021
    • Trend: (£14,703m / £708.0bn) – (£14,752m / £692.7bn) / (£14,752m / £692.7bn) = 0.021 – 0.021 / 0.021 = 0.0%
    • Industry: This ratio indicates how efficiently the bank is using its assets to generate revenue.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Ratio/Metric: $5.71 / (0.535p * 2 * 4) = 13.3 (converting pence to dollars using a rough estimate of 1.25 USD/GBP)
    • Industry: Compared to other UK banks, this P/E ratio is within a reasonable range, reflecting investor expectations for future earnings growth.
  • Price-to-Book Ratio (P/B):

    • Ratio/Metric: $5.71 / (329p * 2) = 0.0087 (converting pence to dollars using a rough estimate of 1.25 USD/GBP)
    • Industry: This P/B ratio is relatively low, which may indicate that the stock is undervalued compared to its book value.
  • Price-to-Sales Ratio (P/S):

    • Ratio/Metric: Market Cap = 8,043m shares * £1.0769 * $5.71 / 2 = $24.7bn, P/S = $24.7bn / $18.4bn = 1.34 (converting GBP to USD using a rough estimate of 1.25 USD/GBP)
    • Industry: This P/S ratio is relatively low, which may indicate that the stock is undervalued compared to its sales.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Ratio/Metric: Assuming EBITDA is close to operating profit before tax, EV = Market Cap + Total Debt – Cash = $24.7bn + £86bn – £92.994bn = $24.7bn + $107.5bn – $116.2bn = $16.0bn, EV/EBITDA = $16.0bn / $7.74bn = 2.1 (converting GBP to USD using a rough estimate of 1.25 USD/GBP)
    • Industry: This EV/EBITDA ratio is relatively low, which may indicate that the stock is undervalued compared to its EBITDA.

Growth Rates

  • Revenue Growth:

    • Ratio/Metric: (£14,703m – £14,752m) / £14,752m = -0.3%
  • Net Income Growth:

    • Ratio/Metric: (£4,811m – £4,632m) / £4,632m = 3.9%
  • EPS Growth:

    • Ratio/Metric: (53.5p – 47.9p) / 47.9p = 11.7%

Other Relevant Metrics

  • Cost:Income Ratio (excl. litigation and conduct): 53.4%

    • Trend: 53.4% – 51.8% / 51.8% = 3.1%
    • Significance: Measures the efficiency of the bank’s operations.
  • Climate and Sustainable Funding and Financing: £31.5bn

    • Trend: (£31.5bn – £29.3bn) / £29.3bn = 7.5%
    • Significance: Reflects the bank’s commitment to sustainable financing.
  • CET1 Ratio: 13.6%

    • Trend: 13.6% – 13.4% / 13.4% = 1.5%
    • Significance: Measures the bank’s capital strength.
  • Tangible Net Asset Value (TNAV) per Ordinary Share: 329p

    • Trend: (329p – 292p) / 292p = 12.7%
    • Significance: Indicates the value of the company’s tangible assets per share.

2. Commentary

NatWest Group’s financial performance in 2024 shows a mixed picture. While net income growth and EPS growth were positive, revenue growth was slightly negative. The bank maintains a strong capital position and has increased its commitment to sustainable financing. However, the interest coverage ratio has decreased, indicating a higher debt burden. Overall, NatWest Group demonstrates a solid financial foundation with a focus on sustainable growth and shareholder returns, but faces challenges in a competitive and evolving market.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️