Up 82% in 2024, might NatWest shares preserve rising into 2025?

This 12 months has been a wonderful one for shareholders of NatWest (LSE: NWG), the UK banking large. NatWest shares have soared 82% to date in 2024.

On high of that they provide a 4.4% yield at right now’s worth. Which means that, if an investor had purchased the inventory at first of the 12 months earlier than that 82% worth improve, their dividend yield would presently be shut to eight%.

But regardless of a storming 2024, the share nonetheless appears to be like low-cost on some measurements.

For instance, the price-to-earnings ratio is lower than 8.

In the meantime, the price-to-book ratio (a standard valuation approach for banks) can also be nicely under 1, suggesting the shares might nonetheless supply good worth.

So, what’s going on – and will the inventory actually supply buyers good worth even now?

Nice 12 months for banks

NatWest has had an outstanding 12 months on the inventory market. However it’s not alone amongst banking friends in that regard.

Two of the opposite strongest performers within the FTSE 100 this 12 months have been Barclays (up 70% to date this 12 months) and London-based rising markets-focused financial institution Customary Chartered (49% greater now than at first of the 12 months).

So, whereas NatWest has been the cream of the crop with regards to share worth improve, clearly the Metropolis has taken a shine to banking shares this 12 months.

That displays a stronger sense because the 12 months has gone on that the worldwide financial system is in honest form and will keep that approach, or get higher. That sometimes means much less threat of mortgage defaults, which is nice for financial institution earnings.

I’m not satisfied banks can have an awesome 2025

However whereas that has been the sentiment, how precisely does it replicate what we now have seen on this geopolitically risky 12 months, not to mention what may occur in 2025 and past?

Taking a look at NatWest for instance, I’m not satisfied its firm efficiency this 12 months has been stellar.

To this point we all know the way it did within the first 9 months. Whole earnings fell 3%. Working bills inched upwards. Revenue from persevering with operations was 0.3% decrease than within the prior 12 months interval.

The corporate’s post-tax revenue within the interval grew – however that largely displays decrease tax costs than within the prior 12 months interval.

I don’t suppose that could be a dangerous efficiency. However it’s pretty unremarkable for my part. It means that the corporate is already struggling to search out progress drivers in a sluggish financial system. If the financial system worsens in 2025, defaults might rise and earnings fall. I see that as a sizeable threat for banks together with NatWest.

The valuation doesn’t look costly – for now

Nonetheless, whereas pre-tax earnings from persevering with operations roughly stagnated within the first 9 months, they nonetheless got here in at £1.2bn. That’s not to be sneezed at.

With a powerful model, giant buyer base and confirmed enterprise mannequin, the present valuation for the shares doesn’t look overblown to me – so long as the financial system doesn’t get markedly worse.

I see the financial system as a threat although. If it bites badly into earnings, right now’s valuation might come to look a lot much less engaging.

So, for now, I’ve no plans to purchase any NatWest shares for my portfolio.