National Australia Bank Limited (NAB)
HOLD

3Q Trading Update

 8 Aug 2022
Sector: Financials

Need to know

  • 3Q cash earnings $1.8bn, in line with the market.
  • Cost guidance increased lifted 3-4% (vs 2-3%), on ‘one-off’ impacts.
  • Share price has outperformed the market by +10% over last quarter, likely to give some back

Investment implications

3Q cash earnings. $1.8bn cash earnings, +3% growth on 1H22 avg. Implies FY22 consensus estimates can be met with flat growth in 4Q22.

Cost guidance lifted. Cost guidance lifted to 3-4% (vs 2-3% prior) which NAB argues driven by is one-off impacts. This will frustrate the market, given NAB has displayed strong cost control over the last few
months. Higher costs dampen the prospects of an FY22 earnings beat in November.

No issues with asset quality (again). Bad debt charge of 11bps vs 2bps average in 1H22 remains a multi-decade cycle low. 90 days past due debts, which generally lead to bad debts - continued to fall. 70bps vs 113bps in 3Q21. Scant evidence so far of any deterioration in asset quality from the RBA cash rate hikes so far.

Net interest margins. Core bank margins flat in 3Q suggests industry margins have now bottomed. Higher cash rates are giving the banks the ability to reprice mortgage books and help offset higher funding/term deposit costs.

Investment View. NAB’s share price has performed strongly over the last quarter, up almost 10% (in-line with CBA) and well clear of both ANZ and WBC. On balance, the higher cost guidance dampens the prospects of an earnings beat at the FY22 result in November which the market was beginning to factor in.

NAB’s share price will likely give some of its recent gains. NAB’s $5bn share buyback is 75% complete and is not likely to be extended at the FY22 Results. We rate NAB a Hold.

This commentary reflects our initial view. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.

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Stock overview

Stock overview

Share price

Share price

Company overview

NAB is among Australia’s top four retail banks, with business and private banking, personal banking, corporate and institutional banking, and New Zealand banking.

Price performance

Share price

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