Earnings call transcript: NatWest Group Q2 2025 beats EPS forecast

NatWest Group (NWG) reported robust Q2 2025 results, with diluted EPS of £0.411 significantly surpassing forecasts by 12.57%, despite a marginal revenue miss at £5.38 billion. The market reacted positively, driving NWG's stock up 2.43% in pre-market trading. The bank highlighted strong half-year income growth of 13.7% to £8 billion and an 18.1% return on tangible equity, while also announcing an interim dividend of 9.5p and a £750 million share buyback. Strategic initiatives, including the acquisition of Sainsbury's Bank and becoming fully privately owned, underpin the bank's outlook for full-year income exceeding £16 billion and ROTE above 16.5%.

Analysis

NatWest Group (NWG) reported a robust second quarter for 2025, characterized by a significant 12.57% earnings per share surprise at £0.411, comfortably beating the £0.3651 forecast. This strong bottom-line performance overshadowed a marginal revenue miss of 0.19%, with revenue coming in at £5.38 billion against a £5.39 billion forecast. The bank's fundamentals appear solid, evidenced by a 13.7% increase in half-year income to £8 billion and a high return on tangible equity (ROTE) of 18.1%. Management has upgraded its full-year guidance, now expecting total income to exceed £16 billion and ROTE to be greater than 16.5%, a signal reinforced by upward revisions from three analysts. Strategic milestones, including the acquisition of Sainsbury’s Bank which added one million customers, and the UK government's complete exit, making NWG fully private for the first time in 17 years, position the bank for a new growth phase. This is supported by a strong balance sheet, with a CET1 ratio of 13.6%, a 150% liquidity coverage ratio, and a new £750 million share buyback program. While management acknowledges risks from economic shifts and mortgage market competition, they also highlighted a potential catalyst in their view that S&P's credit rating is 'overly punitive' compared to recent upgrades from Fitch.

Key Decisions for Investors

• Given the strong EPS beat, raised full-year guidance for both income and ROTE, and a new £750 million share buyback, investors could interpret the results as a strong bullish signal supporting a positive outlook.
• It is crucial to monitor the impact of anticipated base rate cuts and intense competition on mortgage margins, as these represent the primary risks to the bank achieving its strong performance targets.
• The completion of the government's ownership exit and the strategic acquisition of Sainsbury's Bank mark a significant inflection point, warranting a re-evaluation of the bank's long-term growth trajectory and execution capabilities.
• Investors should watch for any change in S&P's credit rating for the group, as an upgrade to align with Fitch and Moody's could serve as a near-term catalyst by improving sentiment and potentially lowering future funding costs.