NatWest (LON: NWG) share price is in an unstoppable bull run. It has surged by over 40% this year, making it the best performer in the FTSE index. It was trading at 312p on Wednesday, 95% from its lowest point in November last year, giving it a market cap of over $34 billion.
Strong earnings growthNatWest is not the only British bank that is booming. Barclays shares are up by over 36% this year while HSBC, Standard Chartered, and Lloyds have risen by over 12%.
NatWest is booming because of its strong financial results, helped by high interest rates by the Bank of England (BoE).
The most recent financial results revealed that its total income dropped slightly to £3.47 billion from £3.97 billion a year earlier. While its profit dropped to £987 million, the figure was higher than what analysts were expecting.
Like other European banks like Unicredit and Santander, the company has focused on boosting their returns to investors and boosting their shares. NatWest has continued to boost its dividend and buy back its stock.
It has done that by reducing its CET1 ratio from 14.4% in Q1’23 to 13.5%. Historically, British banks have maintained a higher ratio than their American peers, which is one reason why they have underperformed over the years.
Still, the challenge for NatWest is that the BoE could end the party soon. The bank, which will conclude its two-day meeting on Thursday, is expected to leave interest rates unchanged at 5.25%, the highest point in 16 years.
Higher central bank interest rates are usually beneficial for banks because they boost their net interest margin.
There are signs that the BoE will point to a rate cut later this year if inflation continues falling. Most analysts believe that the headline Consumer Price Index (CPI) dropped to the bank’s target of 2.0% in April.
Therefore, a sign that the BoE will start cutting rates could hurt NatWest’s performance in the future. On the positive side, rates are expected to remain at a higher rate than we saw a few years ago when rates remained at zero.
NatWest’s stock price has pushed its price to book value jump sharply recently. It has moved from a low of 0.4 in January to about 0.741, its highest point since March 2023, as shown below.
NatWest price-to-book ratio
In contrast, US and some European banks have a higher P/B ratio than NatWest. JP Morgan has a P/B ratio of 1.76 while Goldman Sachs has a multiple of 1.3. Unicredit has a ratio of 0.91 while UBS has a ratio of 0.99.
NatWest share price forecastThe weekly chart shows that the NWG stock price has been in a strong bull run in the past few months. It recently crossed the important resistance point at 280.8p, invalidating the double-top pattern that was forming. In most cases, this pattern is one of the most bearish signs.
Oscillators also show that the stock is gaining momentum. The Detrended Price Oscillator (DPO) has jumped to over 100. At the same time, the Relative Strength Index (RSI) has soared to almost 80, signaling that the speed of change is continuing.
The Average Directional Index (ADX) has also risen sharply and is hovering around 30, which is a sign that the trend is strengthening.
Therefore, the long-term outlook for the stock is still bullish, with the next point to watch being at 350p. However, in the short term, we can’t rule out a situation where it drops and retests the support at 280p.
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