Stock market

Will NatWest shares be worth buying if the UK government divests its stake this summer?

Image source: NatWest Group plc

In the March Budget, Chancellor Jeremy Hunt announced that the UK government plans to sell some of its shares. Nat West (LSE: NWG) – one of the UK’s largest banks – directly to retail investors. The sale could take place as early as June.

So what do we know about this official sale? And will the shares be worth buying for my portfolio?

Why is the government selling?

In an effort to support the financial services sector during the 2008/2009 global financial crisis, the UK government acquired an 84% shareholding in Royal Bank of Scotland (now NatWest Group).

However, the government never intended to become a permanent shareholder, and in recent years, it has been selling its holdings to institutional investors and the bank itself.

Looking ahead, it plans to offload more NatWest shares to individual investors in a ‘retail sale’ in the near future.

The government believes the sale to individual investors could help boost retail investment in the UK and re-energize the country’s capital markets in a landmark transaction.

It’s worth noting that a retail sale date has yet to be confirmed. However, guidance on the gov.uk website says: “A sale could take place as soon as this summer, with market conditions supportive and value for money achieved

How much will the shares cost?

As for how much the shares will be worth, this is where things get a little confusing. Any sale would need to be achieved, Hunt has said.Absolute value for money

I think the implication here is that they would want the UK stock market to be at a higher level when the sale takes place so that the government can get more for the shares.

I think the shares will have to be offered at some kind of discount to the market price. Otherwise there would be little incentive to participate in retail sales (we could buy them directly in the market).

Worth buying?

Let’s assume for now that Will not It is possible to make a ton of money by selling the shares into the market immediately after buying them at retail (either the discount is low or the share price drops after the sale).

So is there a long-term investment potential here? It’s hard to say.

On the plus side, the bank stock looks relatively cheap today (it currently has a P/E ratio of just 7.2) and has a decent dividend yield (around 5.7%). The company is also buying back a lot of stock, boosting earnings per share.

On the downside, NatWest is a very UK-focused bank. And when it comes to banking these days, the UK is not really a growth market. The industry is also increasingly being influenced by innovative fintech companies.

Given the pros and cons, I probably wouldn’t be interested in buying NatWest shares at retail. All things considered, I think I’m likely to get better bang for my buck this year.


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