The NatWest Group (LSE: NWG) share price has had a cracking run so far in 2024. Since the start of the year, it’s up a whopping 45%.
Value investors have always needed patience, and it can take a long time for undervalued shares to realise their potential. I didn’t think it would take this long for the UK’s cheap banks, though.
Still, the NatWest share price might have just got a nice boost, at least for the long term. On the day of the news, it didn’t move much.
Big stock sale
The UK government still held about 26% of NatWest’s stock, up until 31 May. It wants to sell it off and get the bank back 100% into free market ownership, and that has to be a good thing.
The Treasury has shelved plans for a sale to the general public, now that a general election is due on 4 July.
But it’s just reduced its holding to 22% with a £1.24bn sale. And the buyer is NatWest itself, taking back a sizeable chunk of stock. NatWest has agreed to buy more than 392m shares in an off-market purchase at 316.2p, the closing price on 30 May.
It’s not a huge portion of the company. But it represents 4.5% of the share capital, so it’s not small change either. NatWest intends to cancel around 222m of the shares, and hold the remaining 170m.
What it means
This shouldn’t make a huge difference in the short term. But it reassures me in two ways. One is that the government might well be aware of the possible effect a sale to the general public might have.
It would presumably need to be at an attractive price, and that could damage the market value of the stock at the time. Still, future sales will depend on how the election goes, and what the winning party decides to do.
It also tells me the NatWest board is happy to buy at today’s price. And yes, the bank is in the midst of a share buyback at the moment, but this is a big boost on that.
Care needed
The government still owns 22% of the stock, and that’s still a lot. And what the next government will do is a a big question. About all we’ve heard from the Labour party is that it will review the current plans. But that doesn’t really say much at all.
The uncertainty will add to the risk for buyers. And that’s on top of the economic dangers the bank sector still faces.
NatWest recorded a 23% fall in Q1 profit, compared to the final quarter of last year. And we saw another £93m set aside as impairments. So we’re not out of the woods yet.
Valuation
But I see a 5.4% dividend yield. And a forward price-to-earnings (P/E) ratio of only eight, dropping to 6.5 on 2026 forecasts. NatWest is still my current FTSE 100 bank pick.
