Having worked in the financial industry for over 15 years, I think I have a reasonable grasp of the UK’s banking, insurance, and investment sectors. Over the decades, my industry experience led me to buy shares in various companies in these fields. Recently, I realised that I haven’t owned NatWest Group (LSE: NWG) shares since the global financial crisis of 2007-09. Is November the month to correct this oversight?
NatWest shares have dived since August
As I write (on Monday afternoon), the NatWest share price stands at 232.1p, up 7.2p (3.2%) today. This gain makes NatWest shares the third-biggest riser in the FTSE 100 index today. However, this popular stock has fallen hard since hitting its 2022 peak in the summer. Here’s how NatWest stock has performed over six timescales:
Shares in the former Royal Bank of Scotland group have bobbled up and down over the past 12 months, but have lost nearly a quarter of their value over five years. (These figures exclude cash dividends, which would boost returns by a few percentage points a year.)
Yet on 17 August, NatWest shares were riding high, hitting their 2022 intra-day high of 284.42p. Since then, they have slid by more than 50p, losing almost a fifth of their value (-18.4%). So has this FTSE 100 stock dropped into Mr Market’s bargain bin, or is it a classic value trap?
NatWest stock looks fairly cheap to me
For me, the NatWest brand will forever be tarnished due to its ownership by RBS, the worst-managed bank in Britain. During the global financial crisis, RBS came to the very brink of collapse before being bailed out by British taxpayers to the tune of £45.5bn. Crikey.
That said, NatWest is run along much more conservative lines nowadays — and it finally ditched the RBS brand in July 2020. At present, the group is valued at £22.6bn, making it the smallest of the UK’s ‘Big Four’ banks. But after recent falls, NatWest shares look inexpensive to me.
At the current NatWest share price of 232.1p, this stock trades on a price-to-earnings ratio of 9.4. This translates to an earnings yield of 10.6% — almost 1.4 times the FTSE 100’s yield of below 7.7%.
What’s more, NatWest’s dividend yield of 5.1% a year is a full percentage point above the Footsie’s cash yield. In addition, this yield is covered 2.1 times by earnings, which suggests to me that it is both solid and has plenty of room to grow.
Dark clouds are gathering
Now for the bad news for British banks. Consumer confidence is being shattered by soaring inflation, sky-high energy and fuel bills, rising interest rates, and the growing risk of a deep recession. All of this — plus a weakening property market — spells bad news for large lenders in 2022-23.
Currently, I don’t own NatWest shares and I’ve decided not to buy for now. I do like the look of this business and its share price, but my family portfolio already has exposure to two other major British banks. So, despite NatWest’s attractive fundamentals, I won’t buy shares in the bank in November. Instead, I’ll look for good value in another sector of the FTSE 100!
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022