National Australia Bank Limited (NAB)

BUY

The turnaround continues

1H22 result

6 May 2022

Sector: Financials

Need to know:

Record interim cash earnings $3.5bn, in line with market
Dividend 73cps, 2cps ahead of market. Preannounced $2.5bn on-market buy-back to start in May
Further share price gains reliant on continued operational performance, not a valuation re-rate.

Investment view

Cash earnings came in fractionally ahead of the market, with the dividend 2 cps ahead at 73cps. Clear evidence of market share gains continued across home, business, and SME lending. Net interest margins remained under pressure falling a further 6bps to 1.63%.

Although cost control was evident, like ANZ earlier in the week, NAB has stepped away from its medium-term cost target given cost pressures. Wages growth and systems costs (AUSTRAC remediation) now make this cost target difficult.

We expect minimal revisions to both consensus earnings and dividends FY22E, which currently imply 9% and 13% growth respectively for FY22E.

Whilst we score this result as being in line with expectations, the underlying operational performance continues to impress. In our view, the prospect remains that NAB can continue to close the return on equity (ROE) gap vs its peers over the coming years. We retain our Buy recommendation NAB.

Risks to investment view

Key risks for NAB; 1) loss of sector-leading operational momentum; 2) further NIM decline into 2023; 3) higher interest rates impacting bad debts and lowering earnings; 4) further acceleration in investment spending holding back earnings; 5) sustained period of house price falls across both Australia/NZ.

Recommendation

We have retained our Buy recommendation.

NAB 1H22 result

Stock overview

Key properties

Financial forecasts

Share price

Company overview

NAB is among Australia’s top four retail banks with total lending of $660 billion in 1H22.

Disclaimers and Disclosures

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