NatWest Group PLC lower as UBS trims target price following the UK lender’s
The UBS analysts noted the bank’s numbers followed a familiar pattern, with a stronger pre-provision profit offset by a bigger reserve build
PLC () saw its shares drift lower on Friday as UBS trimmed its target price for the remonikered FTSE 100 lender following recent quarterly results.
The Swiss bank reduced its target for NatWest to 140p from 145p, while retaining a ‘buy’ rating on the stock, which was 1.3% lower at 110.50p in morning trading.
The UBS analysts noted that the lender – formerly branded Royal Bank of Scotland Group – saw its numbers follow a familiar pattern, with a stronger pre-provision profit offset by a bigger reserve build.
READ: Natwest Group posts £770mln loss after huge bad debt hit from coronavirus impact
In a note to clients, the analysts pointed out: “On a fully adjusted basis we put the pre-tax loss at £1,003m against company compiled consensus profit of £105m. The delta was entirely driven by a £2.1bn loan loss charge, £1.1bn above consensus.”
They added: “Within pre-provision profit income was 8% better – principally driven by non-interest income (NatWest Markets, NWM), costs 1% higher for a 19% PP beat.”
The analysts noted: “Visibility on credit losses is poor and the market debate around near term dividends continues. We see NatWest as well-positioned here, shrinking its balance sheet and printing a transitional CET1 ratio of 17.2% versus a longer-term 13-14% management target in 2Q20.”
“NatWest faces challenging times, however, as it battles further declines in net interest margins even as volume growth recovers via government guaranteed lending in particular,” the analysts continued.
However, they added: “Though we forecast a loss for FY20 we think the bank relatively well-positioned to pay a special dividend.”
The UBS analysts concluded: “Lower near term earnings forecasts are largely offset by higher peer group multiples to compensate for cyclical pressures, seeing our SOTP-derived target price fall to 140p from 145p.
“With 25% capital upside, material excess capital and potential for value creation through further restructuring of Ulster and NatWest Markets, we retain our Buy rating.”
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