5. NatWest Group plc (NYSE:NWG)
Dividend Yield as of December 6: 4.20%
Number of Hedge Fund Holders: 15
NatWest Group plc (NYSE:NWG) specializes in banking and financial services in the UK and globally, operating through Retail Banking, Private Banking, and Commercial & Institutional segments. NatWest Group had a strong first half of 2024, and its disciplined growth strategy was boosted by the acquisition of a mortgage portfolio from Metro Bank and the acquisition of retail banking assets and liabilities from Sainsbury’s. The bank plans to pay ordinary dividends of about 40% of attributable profit.
The bank’s stock has grown a whopping 84.55% year-to-date as of December 3, 2024. L1 Long Short Fund highlighted NatWest as the largest commercial lender in the UK and the second-largest retail bank. The fund believes NatWest is well-positioned to benefit from improving margins, housing, and economic activity, projecting 8% annual EPS growth over the next three years. Here is what the firm said about the company in its Q3 2024 investor letter:
“NatWest Group plc (NYSE:NWG): NatWest is the largest commercial lender in the U.K. (20% share) and the second largest U.K. retail bank with ~13% of all mortgages. We see NatWest as best positioned in the U.K. Banking sector to benefit from improving margin trends, with topline growth supported by a rebound in U.K. housing and economic activity. Moreover, with significant buybacks owing to a strong capital position, NatWest should see ~8% EPS growth p.a. over the next three years vs. ~2% expected growth for CBA. Although CBA enjoys a more dominant market position in Australia vs. NatWest in the U.K., it appears overvalued in our view as it trades on ~24x FY25 P/E (historical highs) compared to only ~7x for NatWest.
NatWest (Long +10%) shares rallied on strong quarterly results including earnings ~28% ahead of consensus expectations and upgraded guidance driven by higher-than-expected revenues with net interest margin expanding 5bps. NatWest is the U.K.’s second largest retail bank with ~13% mortgage share and the U.K.’s largest commercial lender with ~20% share. In our view, NatWest leads the U.K. Banking sector with improving underlying operating trends, a superior mortgage margin trajectory and increasing interest rate hedge income. Importantly, management expects ongoing net interest margin expansion despite the impact of BoE rate cuts. We believe the company remains significantly undervalued, trading on an FY25 P/E multiple of only ~7x and a price to tangible book value ratio (P/TBV) of only ~1x. This is despite generating a 15% return on tangible equity and ~8% p.a. earnings growth over the next three years based on consensus expectations. We find these metrics and attributes very compelling, especially when compared to Australian banks.”
NatWest Group plc (NYSE:NWG)’s CEO, Paul Thwaite, announced on December 3 that the bank is about to make a quick comeback to private ownership, with the UK government likely selling off its last shares by mid-2025. Thwaite called it a major moment for both the bank’s team and the whole banking world, signaling the end of the 2008 financial crisis fallout. Back in the day, the UK government bailed out NatWest (then called Royal Bank of Scotland) with nearly £46 billion, taking control of around 84% of the bank. However, over the past year, the government’s stake has dropped from 38% in December 2023 to just under 11% today, thanks to a fast-paced sell-off and share buy-backs.
Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital held the biggest stake in NatWest Group plc (NYSE:NWG) at the end of the third quarter, comprising 1.5 million shares worth nearly $20 million. Among the hedge funds tracked by Insider Monkey, a total of 15 funds reported owning stakes in NWG at the conclusion of the third quarter.
