Up 82% in 2024, can NatWest shares continue to rise in 2025?

This year has been very good for shareholders NatWest (LSE: NWG), the UK banking giant. NatWest shares are up 82% so far in 2024.

In addition they offer a yield of 4.4% at today’s price. This means that, if an investor had bought the stock earlier in the year before that 82% price increase, their dividend yield would have been closer to 8%.

However, despite the 2024 windfall, the share still looks cheap on some measures.

For example, the price-to-earnings ratio is less than 8.

Meanwhile, the price-to-book ratio (a common valuation method for banks) is also below 1, suggesting that the shares may still offer good value.

So, what’s going on – and can the stock really offer investors good value even now?

A good year for banks

NatWest has had a very good year in the stock market. But it is not alone among its banking peers in that regard.

Two of the most prominent artists in the FTSE 100 this year it was Barclays (up 70% so far this year) and a London-based emerging markets bank Standard Chartered (49% higher now than at the beginning of the year).

So, while NatWest has been the cream of the crop when it comes to share price increases, the City has clearly taken the bank’s shares very seriously this year.

That reflects a strong sense as the year progresses that the global economy is in good shape and could stay that way, or even get better. That usually means less risk of defaulting on the loan, which is good for the bank’s profits.

I am not sure that banks will have a good 2025

But while that was the sentiment, how accurately does it reflect what we’ve seen in this geopolitically transformative year, let alone what will happen in 2025 and beyond?

Looking at NatWest as an example, I’m not sure their company’s performance this year has been very good.

So far we know how it happened in the first nine months. Net income was down 3%. Operating costs have skyrocketed. Profit from continuing operations was 0.3% lower than last year’s period.

The company’s after-tax profit in the period increased – but that largely reflects lower tax charges than in the year-ago period.

I don’t think that’s a bad performance. But it’s not at all remarkable in my opinion. It suggests that the company is already struggling to find things to boost growth in a sluggish economy. If the economy worsens in 2025, defaults could increase and profits decrease. I see that as a big risk for banks including NatWest.

The valuation doesn’t look expensive – yet

However, while pre-tax profit from continuing operations was largely flat in the first nine months, it still came in at £1.2bn. That should not be sneezed at.

With a strong brand, a large customer base and a proven business model, the current valuation of the shares does not look excessive to me – as long as the economy does not deteriorate significantly.

I see the economy as dangerous though. If it hurts earnings, today’s valuation may look less attractive.

So, at the moment, I have no plans to buy NatWest shares in my portfolio.