Stocks’ Details

National Australia Bank Limited

Long Term Growth Remains Intact: While smitten by the Royal Commission, National Australia Bank Limited (ASX: NAB) delivered a decent set of result for first half of the year wherein revenue increased by 2.5% to $9,093 Mn in 1HFY18 as compared to prior corresponding period (pcp). The top-line growth was mainly supported by business lending volume growth across the portfolio. However, cash earnings contracted by 16.2 per cent to $2,759 Mn in 1HFY18 as compared to prior corresponding period. It was majorly impacted by previously flagged increased investment and restructuring costs occurred during the period. As a result, Cash RoE registered de-growth of 260 bps to 11.4 per cent in 1HFY18. Net Interest margin grew by 5 basis points, reflecting lower funding cost which was partly offset by the impact of the bank levy and housing lending competition and product mix changes. NAB’s common Equity Tier 1 (CET1) capital ratio of 10.21% as at 31 March 2018 marked a growth of 15 bps from September 2017 and the bank expects to achieve APRA’s CET1 ratio benchmark of 10.5% by January 2020 in an orderly manner. NAB’s leverage ratio was at 5.6% as at 31 March 2018. The Group has maintained strong liquidity through the March 2018 half year with a quarterly average liquidity coverage ratio (LCR) of 127%, which is above the APRA requirement of 100%. We believe that the group still has the potential to recoup in longer run at the back of business lending growth and macro-economic factors in Australia and New Zealand market.


Dividend Performance (Source: Company Reports)

On the other hand, NAB declared a fully franked interim dividend of 99 cents per share which is consistent with the interim dividend for the March 2017 half year. This represents a dividend pay-out ratio of 96.9% for the March 2018 half year on a cash earnings basis. It will be paid on July 05, 2018 with May 15, 2018 being the ex-dividend date. Without failing to meet its commitments to providing good returns, the Board expects to maintain FY18 dividend at the FY17 level, subject to no material change to external environment and satisfactory Group performance. As of now, we maintain a “Buy” recommendation on the fully franked dividend stock (that has fallen about 7% in last six months) at the current market price of $ 28.490. 
 

Wesfarmers Limited

Positive Outlook:Wesfarmers Limited (ASX: WES)has recently appointed honourable former New Zealand Prime Minister, Mr. Simon Bill English to the Board, effective from April 30, 2018. Besides this, the company revealed its third quarter results wherein Bunnings Australia and New Zealand (BANZ) marked another solid quarter, with total sales growth of 8.9 per cent, through continued focus on delivering increased value and better experience to customers. Additionally, Bunning United Kingdom & Ireland sales declined by 6.5% to $374 Mn in Q3 FY18 as compared to prior corresponding period due to unusually poor weather in March that significantly affected trading, particularly in the seasonal gardening and outdoor living categories. Further, the sales momentum in Coles continued to improve during the quarter, with headline food and liquor sales growth of 1.9 per cent as the business remained focussed on providing customer with the best possible values, service and quality. Kmart recorded total sales growth of 10.2 per cent at the back of strong growth in customer transactions and unit sold during the same period. Officeworks recorded total sales growth of 7.2 per cent on pcp basis. Given the set of results, WES is expected to deliver a decent second half by executing strategic agenda. However, competitor Woolworths still has an edge over Coles Super market business and WES also suffers from continued headwind in Bunnings United Kingdom and Ireland (BUKI) operations.


Shareholder Distribution (Declared) (Source: Company Reports)

Furthermore, the Board of Directors declared interim dividend of $1.03 per share which is in line with the previous corresponding period. The share price has risen 8.42% in three months as on May 11, 2018 and further up by 6.51 % in last one month. The stock is trading at a higher level and is inching towards its 52-week highest level. The stock looks ‘Expensive’ at the current market price of $ 44.360.

 
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