Shore Capital keeps NatWest at 'hold' as NIM guidance disappoints

(Sharecast News) - Shore Capital has reiterated a 'hold' rating on NatWest Group and trimmed its target price, highlighting the bank's recent "concerning" guidance for flat net interest margins, which led to a sell-off in the stock on Friday.

NatWest's shares dropped after the company delivered third-quarter results in line with expectations, but guided to NIM to remain broadly stable through FY27F.

NIM rose to 2.50% in the quarter, up from 2.37% the year before, though chief financial officer Katie Murray revealed on an analyst call that the measure would remain "flatter" next year. The market had pencilled in a figure of 2.62% for 2027.

Shore Capital warned that NatWest's expected £1bn-plus structural hedge income boost next year could be partly offset by intensifying competition for deposits and lending, prompting the broker to lower its NIM forecasts and predict weaker net interest income than current market expectations.

The broker acknowledged that strong growth in average interest-earning assets, supported by increased corporate lending, should partly mitigate the impact of lower NIM. Meanwhile, the bank's capital flexibility has improved with CET1 requirements easing.

"When we published following the interims on 3 August, we argued that the shares looked fully valued; they have since fallen 17%, vindicating our caution. We now think the reaction to the NIM outlook is somewhat overdone, particularly given the AIEA growth and capital offsets," Shore Capital said.

However, with 11% upside to its new target price of 645p, down from 650p previously, the broker said it "would prefer to see a greater margin of upside before turning more positive [on the stock]".

NatWest shares rebounded just 1.4% to 587.6p by 1428 GMT, only partially recoverin after dropping nearly 9% the previous session.