RBC Capital Markets raises target price on NatWest

(Sharecast News) - Analysts at RBC Capital Markets hiked their target price on NatWest from 650p to 725p on Tuesday following the bank's third-quarter results. RBC Capital said its full-year 2027 adjusted pre-tax prfots estimate has increased by 6% driven by net interest income, partially offset by higher impairments. On a divisional basis, it said the upgrade was driven by NatWEst's retail and commercial & industrial units.

The Canadian broker also updated its structural hedge modelling on NatWest and now estimates total structural hedge income of £4.4bn/£5.8bn/£6.9bn/ £7.0bn in FY25/FY26/FY27/FY28.

"Our numbers assume that: i) NWG's hedge product notional increases by c.1.1% CAGR 28/25; and ii) that the bulk of swaps in NWG's product/equity structural hedge are 5yrs/10yrs. Our model assumes that 5yr swap rates average 3.8%/3.5%/3.3%/3.3% in 2025/26/27/28, which compares to NWG's assumption of c.3.5% in FY26-27," said RBC.

In FY25, RBC models a Q4 exit banking net interst margin of 240bps, leading to total adjusted income of £16.36bn, costs ex-litigation of £8.11bn, and reported return on tangible equity of 18.6%.

"In FY26/27/28E, we model a reported ROTE of 18.4%/18.4%/18.1%. Over FY25-FY27E we model £13.5bn of shareholder returns (£8.5bn dividends; £5bn buybacks) equating to a 3yr average dividend yield of 6.2% (total return yield 9.9%)," added RBC, which kept its 'sector perform' rating on the stock.

Reporting by Iain Gilbert at Sharecast.com