Natwest Group Plc (LSE:NWG) shares have remained fairly immune to the latest stock market volatility. The stock price has only dropped by around 5% in the last 12 months. Although zooming out further, this business hasn’t delivered the best performance falling by 21% over the last half-decade.

Now that interest rates are back on the rise, is the bank primed to make a comeback? And if so, does that make the discounted market capitalisation an exciting buying opportunity for my portfolio?

What does Natwest do? 

Until recently, this business was initially operating under the name of the Royal Bank of Scotland Group Plc, or RBS Plc. In July 2020, management rebranded the business to Natwest to better reflect that its Natwest bank business drives the majority of the company’s cash flow.

The group primarily offers banking and other financial services to personal, business, and commercial customers. It operates through various segments:

• Retail banking
• Private banking
• Commercial banking
• RBS International
• Natwest Market
• Central Items & Others
• Ulster Bank RoI.

The company has about 800 branches across the country with more than 59,200 employees. Natwest shares are listed on the London Stock Exchange. And interestingly, while there is a high level of institutional ownership, the company’s largest shareholder is the UK government, with a 48.1% stake as of March 2022.

Natwest 2022 half-year results

Looking at the latest results, Natwest has delivered what I think is a solid start to its 2022 fiscal year. On the back of a more favourable lending environment, the company reported a total income increase of 21.9%, reaching £6.23bn. This came paired with a 12.8% bump in operating profits reaching £2.6bn.

Management also managed to lift some pressure off profit margins by reducing expenses by £3.2bn or 1.5%.

Consequently, attributable profit over the last six months came in at £1.9bn which translates into an earnings-per-share (EPS) of 17.4p as well as a tangible return on equity of 13.1%.

Compared to its historical performance, that’s not bad at all. At least, that’s what I think, especially since the groups’ balance sheet remains robust, and management is seemingly executing disciplined risk management in the current challenging economic environment.

What is the future of Natwest shares?

As refreshing as it is to see double-digit growth return to Natwest’s operations, it doesn’t guarantee the group’s future performance. After all, if the company cannot maintain its upward momentum, it’s unlikely that Natwest Group shares will reverse their current lacklustre trajectory.

Today the stock trades at a PE ratio of 8.7. Compared to the market’s typically ratio of 12-15, it certainly makes the UK bank stock seem a bit cheap and, therefore, potentially attractive to value investors.

Although I should note that its 52-week range lies between 192.9p and 284.4p. Comparing its current stock price of 229.5p suggests the valuation was cheaper earlier in the year. Perhaps the bullish trend for this business has already begun.

That certainly seems to be the common belief among broker forecasts. Of the 22 institutional analysts following Natwest shares, only one has a sell recommendation. The rest are firmly issuing “buy” recommendations with an average price target of 371.5p. Assuming these forecasts are accurate, that indicates there is a potential 63% gap in valuation for investors to capitalise on.

What are some risk factors?

Before getting too excited by the impressive growth potential of Natwest shares, it’s critical to remember that no investment is risk-free. And even though Natwest is one of the largest banking groups in the United Kingdom, it still has its fair share of threats to contend with.

Due to the nature of its business is exposed to various financial risks, which include:

• Significant exposure to counterpart and borrowers risk
• Inaccessibility to an adequate source of funding and liquidity
• Losses or requirements to maintain a higher level of capital as a result of the failure of business models

Furthermore, the company is faced with continued economic and political risk and uncertainties in the UK and global market as a result of the following:

• High inflation
• Rising interest rates
• Supply chain issues
• A competitive market

Needless to say, there is a lot that can go wrong. And in the worst-case scenario, disruptions to the firm’s operations or profitability could easily send the Natwest share price in the wrong direction.

Is it good to invest in Natwest Group shares?

There are a lot of factors that need to be considered before making an investment decision. When looking at a stock candidate for my portfolio, I always consider the management team, shareholding structure, profitability, competitive advantages, and risks.

However, one of the first things I look for is the level of insider ownership. Natwest Group is undoubtedly unique in that department, with such a high stake being held by the UK government. The government gained its majority stake after the 2008 financial crisis and has slowly been unwinding its holdings.

With a further £1.2bn block of shares sold in March 2022, the selling pressure of Natwest shares has been higher than some of its peers. This is undoubtedly a contributing factor as to why the past performance of this stock hasn’t been so spectacular.

The government intends to sell its remaining Natwest shares by 2025. As such, this selling pressure is unlikely to disappear anytime soon. However, with the company outperforming analysts’ earnings estimates for the last six quarters, this downward force may actually be creating a lucrative buying opportunity for patient investors.

When paired with its continued payout of shareholder dividends, I can’t help but feel this is the case. That’s why, personally, I’m considering adding Natwest shares to my income portfolio.

Having said that, I’m curious to see how the firm is fairing in this latest quarter following the recent volatility of the Pound Sterling. With third-quarter results scheduled to be released at the end of October, I shouldn’t have to wait long to find out.

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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.