NatWest to report with dividends and impairments in focus

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Hot on the heels of the results from Barclays come the numbers from NatWest Group PLC (LON:NWG), with dividends very much in focus.

The banking regulator, the Prudential Regulation Authority (PRA), lifted the temporary ban on dividend payments it had imposed last March in the teeth of the initial coronavirus crisis.

The PRA did caution, however, that dividends should be “prudent”, as one might expect from a watchdog with the word Prudential in its name.

Barclays showed a level of restraint not always evident in a company led by an investment banker, declaring a dividend of a penny although it also announced a £700mln share buyback, which it said was equivalent to 4p a share.

NatWest, the company formerly known as The Royal Bank of Scotland (RBS) has the biggest relative capital reserves of the big five UK banks, and Swiss bank UBS has noted that it has around three years’ worth of ‘normal’ loan loss reserves against currently un-defaulted loans.

The bank is forecast to report underlying profits of £218mln, according to UBS’s models. Last year, it declared an attributable profit of £3,133mln or £1,561mln excluding foreign exchange gains.

“We expect non-interest income to remain subdued in 4Q and to see further pressure in 2021 as capital market revenues normalise and capital is withdrawn from NatWest Markets’ rates business in particular,” UBS said.

Bad debt impairments are a concern for all banks during this pandemic. NatWest said it expects full-year impairments of between £3.5bn and £4.5bn.

Also declaring full-year results on Friday is Segro PLC (LON:SGRO), the real estate investment trust (REIT) formerly known (a long time ago) as Slough Estates.

“While investors in commercial property continue to debate whether office blocks and retail space will make a comeback in a post-pandemic world, they seem to be in agreement that warehouses and (out-of-town) industrial sites are a key element of the consumer-led, e-commerce-driven future. That, in turn, could point them to FTSE 100 member SEGRO,” suggested Russ Mould, the investment director of AJ Bell.

“January’s trading update revealed that 98% of 2020’s rent roll had been received on time and that 88% of Q1 2021’s money had also been paid, with just 8% subject to agree deferrals. Such figures would be the envy of many REITs right now and SEGRO continues to acquire assets, as funded by June’s £680 million placing (its fourth capital raising in five years, following those of 2016, 2017 and 2019).

“With SEGRO having already disclosed rent payments, the key headline figure will be net asset value (NAV) per share. This stood at 716p at the end of the first half and 697p at the end of 2019. The analysts’ consensus is for growth to 764p, with NAV reaching 832p by the end of 2021 and 891p buy end-2022,” Mould said.

After the 9.5% increase in the interim dividend to 6.3p a share analysts are pencilling in a 5.3% hike in the full-year figure to 21.8p, Mould noted.

On the macro side, UK retail sales for January are due out with economists expecting a 3.0% month-on-month fall and a 0.8% year-on-year (yoy) decline, with petrol sales included. That follows gains of 0.3% and 2.9% respectively in December.

“Retail sales are expected to fall from the previous month, which makes sense as so many people couldn’t leave their houses (online shopping notwithstanding). The number of transactions on The Clearing House Automated Payments System (CHAPS), the UK’s money transfer system, fell 13% yoy during the month, while the CBI retail sales index fell to -50 from -3, indicating worsening conditions among retailers,” commented Marshall Gittler.

Friday, February 19

Finals: Tbc Bank Group PLC (LON:TBCG), Segro PLC (LON:SGRO), Natwest Group PLC (LON:NWG), Kingspan Group PLC (LON: KGP)

Economic data: UK retail sales, UK PSBN excluding banks, UK GfK Consumer Confidence

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