Election Day 2024 is here. I’m Canadian, so I can’t vote, but all Americans need to get out and make a difference in America’s future. The markets depend on it.
Anyway, that’s as much politics as I’m prepared to discuss.
On Tuesdays, I cover companies in Barchart’s Top/Bottom 100 Stocks to Buy. Looking over yesterday’s action, two UK-based banks stand out because both entered the Top 100. Barclays Plc (BCS) is in the 99th spot, and Natwest Group (NWG) is in the 72nd.
While other financial services-related stocks are in the Top 100, BCS and NWG are the only banks on the list.
It could be time to look beyond America’s shores for your next financial services or bank investment. Here’s why.
What to Like About Natwest
The company reported its Q3 2024 results on Oct. 25.
Due to its strong quarter, Natwest’s share price hit its highest level in nine years. In addition to healthy third-quarter results, it lifted its outlook for 2024 to revenue of 14.4 billion British pounds ($18.73 billion), up from the previous guidance of 14 billion ($18.21 billion). As a result, it expects ROTE (return on tangible equity) to be over 15% from the previous 14%.
A big highlight on the asset side of its balance sheet was its loan portfolio, which increased by 8.1 billion British pounds ($10.54 billion), bringing its total loans to 367 billion ($477.37 billion).
On the liabilities side of the balance sheet, customer deposits rose by 8.3 billion British pounds ($10.80 billion), to 427 billion ($555.41 billion). As a result of this healthy growth, its net interest margin (NIM) was 2.18%, eight basis points higher than at the end of June and 13 basis points higher than a year ago.
Its income, excluding notable items, was 3.77 billion British pounds ($4.90 billion), 5.1% higher than Q2 2024 and 7.3% higher than Q3 2023.
There is no question that Natwest is having a good year.
What to Like About Barclays
Barclays reported Q3 2024 results on Oct. 24. It also reported a healthy quarter.
Looking at loans, it finished the quarter with 326.43 billion British pounds ($424.60 billion), down from 333.29 billion ($433.52 billion) at the end of December 2023 and 339.57 billion ($441.69) as of Q3 2023. However, that doesn’t include loans and deposits of 8.4 billion ($10.93 billion) and 6.8 billion ($8.85 billion) as a result of its Nov. 1 acquisition of Tesco Bank’s retail banking business for 600 million ($780.4 million).
Its deposits at the end of the third quarter were 524.72 billion British pounds ($682.52 billion), up from 524.32 billion ($682.0 billion) at the end of December 2023, and down from 532.79 billion ($693.02) as of Q3 2023.
Barclay’s net interest margin (NIM) in the third quarter, excluding its Investment Bank and Head Office, was 4.29%, nine basis points higher than at the end of June and 18 basis points higher than a year ago.
Its income, excluding notable items, was 1.56 billion British pounds ($2.03 billion), 26.4% higher than Q2 2024 and 22.8% higher than Q3 2023.
Its ROTE was 12.3% in Q3 2024 and 11.5% for the first nine months of 2024, ahead of its 10%+ target for 2024 and 12% by 2026.
I don’t spend much time looking at UK bank financials. Things are slightly different from North American statements.
Starting in the first quarter report, Barclays changed its reporting segments from two, Barclays UK and Barclays International, to five: Barclays UK, Barclays UK Corporate Bank, Barclays Private Bank and Wealth Management, Barclays Investment Bank, and Barclays US Consumer Bank.
It did so as part of a three-year plan launched in February to improve its profits while making them more stable. The plan is a work in progress.
However, there is no question its UK business is the best part of the overall banking group.
Which Is the Better Buy?
Over the past year, both bank stocks are performing well, with Barclays and Natwest up 91% and 117%, respectively, compared to 54% for JPMorgan (JPM). Of the three, Natwest has the best five-year return, up 73%.
Nine analysts cover Natwest stock, with seven rating it a Strong Buy (4.56 out of 5), compared to 4.78 out of 5 for Barclays and 4.27 for Jamie Dimon’s bank.
According to S&P Global Market Intelligence, Natwest is valued at 2.3x revenue and 1.0x tangible book value per share (TBVPS). That compares to 1.5x revenue and 0.7x TVBPS for Barclays and 3.8x revenue and 2.3x TVBPS for JPMorgan.
Barclays is the cheaper of the two stocks, but it’s in the middle of a three-year reorganization, whereas Natwest’s business appears to be operating at a high-efficiency level.
I could only invest in one; it would be NWG stock.
I’d check out the May 16/2025 $10 call if you're into options. It’s got an ask price of $0.95, with 192 days to be further in the money. In addition, with a delta of 0.55984, you can double your money by selling the call before expiry if it appreciates by $1.70 (17%).
It’s in the Top 100 Stocks to Buy for a reason. I don’t see why it can’t deliver another 17% appreciation over the next 6.5 months.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
