After returning 101% in 2024 is this FTSE bank the best share to buy for 2025?

The outcomes are in and this yr’s finest performing FTSE 100 inventory is excessive road large NatWest Group (LSE: NWG).

Its shares have climbed 88% thus far in 2024 and as soon as dividends are included, the whole return is a wonderful 101%.

Sadly, I selected to realize my publicity to the banking sector through Lloyds Banking Group, and for some time, I used to be doing properly too. Then Lloyds was sideswiped by the motor finance mis-selling scandal, whereas NatWest powered on.

Susannah Streeter at Hargreaves Lansdown, which compiled the information, stated because the yr attracts to an in depth the NatWest share worth continues to be “on a roll, with third-quarter buying and selling beating expectations”.

NatWest shares are one in 100 this yr

She added: “Default charges remained at steady and low ranges, and regardless of pessimism surrounding the UK Funds, an improve within the UK’s development prospects for 2025 bodes nicely for banks delicate to the broader financial temperature.”

Personally, I’m extra involved about UK development prospects. Particularly after this morning’s Workplace for Nationwide Statistics knowledge, which confirmed the UK financial system shrinking by 0.1% in October, matching September’s 0.1% drop.

Streeter stated NatWest’s earnings steerage has been coming in increased with rates of interest anticipated to remain increased for longer. “That’s constructing in improved underlying efficiency because it retains web earnings margins extra strong.”

Increased rates of interest ought to help NatWest’s web curiosity margins, the distinction between what it pays savers and prices debtors. There’s a hazard it is going to improve mortgage impairments, although, as long-term fixes and owners are pressured to remortgage at increased charges. Two-year fixes are again above 5%.

Streeter says NatWest has made “continued progress in preserving prices below management” and can also be “a giant beneficiary of its massive structural hedge”, designed to easy out web curiosity earnings.

She stated: “The best way the hedge has been designed means it’s going to be rolling onto higher charges within the coming years from among the lowest charges within the sector, it’ll be one other sector tailwind to take pleasure in.”

I do love a optimistic sector pattern and hopes it sweeps my Lloyds shares alongside, too. However ought to I scrape collectively some money and diversify into NatWest?

Can this FTSE 100 inventory outperform twice?

I’m instinctively cautious of shopping for a inventory after it’s had a blockbuster run. My fear is I overpay and find yourself struggling an instantaneous loss. NatWest shares don’t precisely look costly, buying and selling at 8.47 occasions 2024 earnings. Nevertheless, low P/Es are routine throughout the large banks, so I’m undecided how a lot I can depend on it.

The worth-to-book ratio could also be a greater information. A yr in the past most FTSE 100 banks had a P/B of round 0.4 or 0.5 occasions. As we speak, NatWest is as much as 0.97. That’s solely a whisker away from the determine of 1 that’s seen as truthful worth.

The 18 analysts providing one-year share worth forecasts have produced a median goal of 463.3p. If right, that may be a rise of 14.07% from right this moment (not 88% sadly). Mixed with a forecast yield of 5.08% that implies a possible complete return of practically 20%.

However I received’t purchase NatWest although. We’ve had our enjoyable. As an alternative, I’ll maintain onto my Lloyds shares, and hope they make up misplaced floor in 2025