NatWest Group pays 3p divi with UBS confident there is scope for bigger payouts

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NatWest Group PLC (LON:NWG) made a better-than-expected operating profit in the fourth quarter and as anticipated, has resumed dividend payments.


The pre-tax operating profit in the fourth quarter of 2020 was GBP64.0mln, which was ahead of the median forecast among analysts of GBP55.2mln but a sharp reduction from the profit of GBP1.55bn in the same quarter of 2019.


Total income in the quarter slumped to GBP2.54bn from GBP4.23bn a year earlier; the market had expected a figure of around GBP2.63bn.


The bank’s common equity tier (CET) ratio, a measure of the bank’s “capital cushion”, was better than expected at 18.5% versus forecasts of 17.8%; in the same quarter of the previous year, the CET ratio was 16.2%.


Having been given the nod by the Prudential Regulation Authority to resume dividend payments, NatWest’s board has recommended the payment of a final dividend of 3p.


In future, the company intends to pay out around 40% of attributable profit in dividends.


For the year as a whole, total income tumbled to GBP10.80bn from GBP14.25bn in 2019.


The group made an operating loss before tax of GBP351mln versus a profit in 2019 of GBP4.23bn, while the post-tax loss attributable to shareholders was GBP753mln, compared to a profit of GBP3.13bn in 2019, after the company took an impairment charge of GBP3.2bn, the bulk of which relates to potential future loan losses.


The group has completed its strategic review of its Ulster Bank operations in the Republic of Ireland (ROI) and decided to begin a phased withdrawal from the ROI over the coming years.


NatWest has agreed in principle to sell a portfolio of around EUR4bn (GBP3.5bn) worth of performing commercial loans to AIB Group. It is also in talks with Permanent TSB Group Holdings (among others) about the possible sale of certain retail and small/medium enterprise (SME) assets.


“Following an extensive review and despite the progress that has been made, it has become clear Ulster Bank will not be able to generate sustainable long terms returns for our shareholders,” said Alison Rose, the chief executive of NatWest.


As for the performance of the group as a whole, Rose said that despite reporting a loss for the year, “NatWest Group delivered a resilient underlying performance in a challenging operating environment”.


“The bank continued to grow in key areas such as mortgages and commercial lending and our balance sheet remains strong, with one of the highest capital ratios amongst our UK and European peers,” Rose said.


“We made strong progress in executing the strategy we set out in February 2020 as we build a relationship bank for a digital world; a bank that will meet the rapidly evolving needs of our customers at different stages of their lives through an ever-increasing focus on digital and transformation. In turn, this will drive sustainable, long-term returns to our shareholders.


“We cannot be certain of the long-term impact of the pandemic but we can be certain that our bank will continue to support those who need it most as we build back better,” she concluded.




UBS said the bank’s capital strength should pave the way for meaningful distributions to shareholders.


“The 18.5% CET1, and 17.5% excluding IFRS 9 transitional benefits, compares with an MDA [maximum distributable amount, as per Bank of England guidelines] of 8.9% and 13-14% target range. We think this capital strength will allow significant capital returns: NatWest plans an ordinary dividend payout ratio of 40% with a minimum of GBP800mln pa in distributions each year from 2021-23, including special dividends,” UBS said.


“In addition, buybacks of ~GBP1bn / 4.99% of the bank may be forthcoming if the government proves keen to sell,” the Swiss bank said, referring to the government’s still significant stake in the company formerly known as Royal Bank of Scotland.


The bank has a neutral rating on the shares and a 12-month price target of 172p.


The shares were up 1.3% at 173.5p in late morning trading.


— adds broker comment and share price reaction —

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