The NatWest Group (LSE: NWG) share price dipped a few % in early buying and selling Friday (24 February), regardless that the financial institution posted a robust set of full-year outcomes and supplied upbeat steerage up to 2027.

Nonetheless, it’s been one of many FTSE 100 success tales of 2024. And lots of people will certainly be taking some revenue off the desk.

The 2024 backside line confirmed a 12% rise in earnings per share (EPS) to 53.5p. And the full-year dividend was lifted 26% to 21.5p. On Thursday’s closing price, that’s a price-to-earnings (P/E) ratio of 8.2, and a 4.9% dividend yield. Does that sound overpriced after the 12 months’s doubling? To not me.

Cracking returns

A 17.5% return on tangible fairness (RoTE) stood out to me, boosted by a RoTE of 19% within the ultimate quarter. It simply beat the ten.5% reported by Barclays this week, and the 13% that Lloyds Banking Group expects for the 12 months.

NatWest steerage suggests a 15%-16% RoTE for the 2025 12 months, with no less than 15% up to 2027. Add a Frequent Fairness Tier 1 (CET1) ratio of 13.6%, anticipated to proceed at 13%-14%, and I’m not seeing any doubtless liquidity issues.

The federal government’s stake, held because the bailout of what was then Royal Financial institution of Scotland, is now beneath 7% after the Treasury just lately disposed of practically 80m shares. CEO Paul Thwaite instructed us “2025 is also likely to be the year that NatWest Group returns to full private ownership.”

The prospect of constant authorities offloading has been a risk hanging over the share price, however fortunately that’s nearing its finish.

Charges and curiosity

Rates of interest are a key factor for traders in financial institution shares to be careful for. After the Financial institution of England’s resolution to chop base charges to 4.5%, a mortgage price conflict is already kicking off. Banco Santander and Barclays have introduced restricted provides of beneath 4%. And Nationwide says it’ll decrease some charges.

In opposition to that backdrop, NatWest shareholders needs to be buoyed by the financial institution’s 2.13% web curiosity margin for 2024. That’s one foundation level above 2023 — not so much, however not a fall. Nevertheless it’s nonetheless one thing that would hamper financial institution income within the coming 12 months.

Unhealthy money owed are one other risk, particularly if we see inflation remaining stubbornly excessive. On that rating, NatWest appears to have achieved nicely in 2024. It reported “a net impairment charge of £359m for 2024, or 9 basis points of gross customer loans, with levels of default stable.” Once more, that’s reassuring, however traders have to preserve their eyes open.

Cautiously optimistic

What in regards to the lack of pleasure proven within the NatWest share price in response to those outcomes? It suggests to me that the market sees financial institution inventory valuations as excessive sufficient for now. And with UK financial development prospects nonetheless trying shaky, I believe the market may need it proper. Share costs may be in for a flat 2025.

I’m bullish in regards to the long-term outlook for UK financial institution shares. Proper now although, I feel there may be higher yields for dividend traders to contemplate chasing.