US financial stocks, including banking stocks, showed solid returns in the first half of 2021.
So far this year, both and and as have risen about 28.5% and 21.5%, respectively.
Across the Atlantic, UK banks also had a strong 2021. So today we're looking at member NatWest Group (LON:) (NYSE:).
Weekly chart of the NatWest group.
NatWest is one of the largest banks by market capitalization on the UK main index . Others include Lloyds Banking Group (LON:) (NYSE:), HSBC (LON:) (NYSE:), Barclays (LON:) (NYSE: ) and Chartered by default (LON:) (OTC:).
Here's how the shares of these five banks fared so far in 2021:
NWG: up 21.2%;
LLOY: Up 28.4%;
HSBC: up 11.2%;
BARC: up 17%;
STAN: up 0.5% (i.e. flat).
On July 1, NWG stock closed at 206.9p ($5.69 for US-domiciled stocks). The 52 week price range was 90.54p-214.20p. The current price supports a dividend yield of 1.48%, and the market cap is £23.9 billion (or $32.9 billion).
NatWest Group's recent earnings
Edinburgh-based NatWest Group is the largest commercial bank in the UK. The retail business of the group, formerly known as Royal Bank of Scotland, is also significant. The UK government still owns nearly 55% of the bank, which was bailed out during the 2008/09 financial crisis.
At the end of April, the bank announced an interim management statement. Total revenues were £2.66 billion, down 16% year-on-year. Operating profit before tax was £946 million and profit attributable to shareholders was £620 million. In the first quarter of 2020, the respective numbers were £519 million and £288 million respectively.
Basic EPS was also up 125% YOY. Analysts were generally pleased with the stats, balance sheet strength and earnings jump. Investors wondered if the fundamentals could also mean the potential for higher dividends in the coming months.
About the results, CEO Alison Rose noted:
"Default rates remain low as a result of the UK government's support schemes, and there is cause for optimism as vaccine programs progress at a rapid pace and restrictions are eased. However, there is lingering uncertainty for our economy and for many of our customers as a result of COVID-19.”
After the Q1 results announcement, NWG stock initially fell about 4% towards 190p. But since then, stocks have been strong, buoyed by general optimism about the UK economy.
Bottom Line
FTSE 100 banks have had a good time in 2021. Overall, they have grown their revenues and kept their spending under control. With the UK easing lockdown, investors are positive about the outlook for the sector.
But given how much bank stocks have risen over the past six months, short-term profit taking could also be just around the corner. In other words, much of the good news may already be priced in for the summer months. Potential investors in NWG stock would find a better value around 195p or even lower.
Long-term, we think NWG stocks could see further gains in the coming quarters. The stock's forward P/E and P/S ratios are at 9.83 and 2.44. The price-to-book value of just 0.57 is also low and could be attractive to buy-and-hold investors. Before the end of the year, LLOY stock could attempt to hit the level of 225p seen before the start of COVID-19 in early 2020.
Finally, those who don't want to invest their entire capital in NatWest stocks, but are interested in financial stocks, can invest in an exchange-traded fund (ETF). Examples are:
Invesco KBW High Dividend Yield Financial ETF (NASDAQ:): Up 25.2% YTD;
iShares Global Financials ETF (NYSE:): up 19.5% YTD;
SPDR® S&P Bank ETF (NYSE:): up 23.9% YTD.
