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NatWest’s share price has experienced a strong bullish recovery in recent weeks, despite increasing concerns about a potential deep recession in the UK. On Monday, the stock surged to 265p, its highest level since September 22, marking a rise of over 23% from its lowest point this year.
NatWest, previously known as the Royal Bank of Scotland (RBS), is a prominent UK domestic bank. It operates several well-known brands, including Coutts, the bank used by the Royal Family. Unlike Barclays, NatWest has shifted from a company with global ambitions to focusing primarily on national retail banking, with no major investment banking or wealth management operations.
As a result, NatWest’s performance is closely tied to the UK economy. In the first nine months of the year, the bank reported a 15% increase in operating profit, reaching £4.1 billion. Its Return on Tangible Equity (ROTE) rose to 10%, and net lending to customers grew by 5.4% to £372 billion. However, the bank’s common equity tier 1 ratio dropped to 14.3%.
NatWest is known for being a generous dividend payer. It has already distributed over £750 million in dividends and aims to pay £1 billion this year. Additionally, it announced a £1.75 billion special dividend earlier this year and has repurchased stock worth over £1.2 billion.
However, NatWest faces significant challenges ahead. While its net interest income is expected to rise, the bank will likely face higher default rates as the UK economy potentially enters a deep recession. In fact, the bank reported an impairment charge of £242 million in the third quarter. Additionally, its costs have increased significantly in recent months.
Analysts have mixed opinions on NatWest’s stock. In November, analysts at the Royal Bank of Canada maintained a bullish outlook with a target price of 300p. A month earlier, analysts at Deutsche Bank, Barclays, and Berenberg raised their targets to 380p, 400p, and 350p, respectively.
The daily chart shows that NatWest’s share price has been in a strong bullish trend over the past few weeks. The stock has moved above the 200-day and 50-day moving averages and formed a golden cross pattern. It has also surpassed the ascending trendline shown in green, while the Relative Strength Index (RSI) has been trending upwards.
However, the stock has formed a rising wedge pattern, which is typically a bearish signal. This suggests that a bearish breakout could occur in the near term. If that happens, the next key level to watch would be 247p. Conversely, a move above the resistance level at 265p would invalidate this bearish outlook.