National Australia Bank Limited (NAB)
HOLD

New buy-back

 15 Aug 2023
Sector: Financials

RESULTS

Need To Know

  • New $1.5bn on-market share buyback.
  • 2H23 cash earnings run-rate ~3% ahead of consensus
  • 2H23 Bad debt run-rate running below consensus
  • Market needs to start factoring in going capital management across FY24E/25E given the ability to generate ~1.0% point of CET1 per year

Investment Implications

A solid 3Q23 trading update from NAB, which is no threat to consensus estimates for 2H23.

Cash earnings running low single digits ahead of 2H consensus, whilst bad debt charges are below ($244m 3Q vs consensus at $680m for 2H). Net Interest Margins (NIM) slipped -7bps in 3Q (CBA was 5bps 2H23), which NAB deliberately sacrificed volume in home lending to manage margins.

A new on-market share buy-back of $1.5bn will soak up ~40bps of CET1 capital, which leaves pro-forma CET1 capital at June 30 of 11.6% - still clear of both APRA and Board comfort levels.

In our view, the prospects of an economic soft-landing for industry bank debts across Australia leave NAB in a position where organic capital generation over FY24E/25E could be ~1.0%.  This opens the door for further capital management, which is not currently factored into consensus estimates.

Capital management could take the form of; A) further on market buybacks; b) dividends at the top end payout range (65-75%, market at currently at 70%), and c) ad-hoc special DPS to utilise the build-in franking credits (consensus has no Special DPS factored in).

NAB has underperformed major bank peers CYTD. A solid 3Q update and introduction of a $1.5bn share buyback should help NAB claw back some of the share price underperformance. NAB NTM PER is sitting around the long-term average, with a FY24E dividend yields of 5.8% (excluding any benefits from capital management).

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Stock Overview

Share Price

Company Overview

NAB provides banking services including accounts, loans, insurance, investments, payments, and online banking to individuals and businesses globally. It also offers services for small businesses and industry-specific banking.

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