National Australia Bank Limited

Witnessing Higher Liquidity Ratios: National Australia Bank Limited (ASX: NAB) is primarily into the banking and business banking services. The major segment of the Bank includes Business & Private Banking, Consumer Banking & Wealth Management, Corporate & Institutional Banking, Customer Products & Services, and NZ Banking.

The company has recently announced to pay a dividend of AUD 0.830 on ordinary fully paid shares with an ex-date of Tuesday, May 14, 2019 and a record date of Wednesday, May 15, 2019. The payment date for the dividend is Wednesday, July 3, 2019.


Results 1HFY19 (Source: Company Reports)

The reported net profit attributable to owners of NAB increased by $111 million or 4.3% to $2,694.0 million.The net profit attributable to owners of NAB excluding the impact of discontinued operations increased by $30 million or 1.0%, with discontinued operations reflecting losses relating to customer-related remediation and additional costs associated with the life insurance business sale.

The cash earnings increased by $195 million or 7.1%including the impact of customer-related remediation of $325 million in the March 2019 half year and restructuring related costs of $530 million in the March 2018 half year. Excluding these items, cash earnings decreased by $10 million or 0.3%.

Among the key ratios, the common equity tier 1 ratio (CET1) is up by 20 bps to 10.40%as compared to September 2018 and is placed well to exceed APRA’s strong target of 10.5% by January 2020. Further, the liquidity coverage ratio stood at a quarterly average of 130.0% along with a net stable funding ratio of 112%.

On the operational performance front, the expenses growth of the company is slowing down and as compared to 2H18 it declined by 2% as the company was able to capitalize on the benefits of transformation. Although the asset quality metrics was impacted by higher arrears for Australian housing lending, however the company was able to keep the loss rates of the portfolio to as low as 2 bps.     

The company reduced its dividend by ~16% primarily due to more difficult operating environment and to improve capital generation. 1H19 dividend pay-out was 77% of cash earnings (70% excluding customer-related remediation). Moreover, NAB has a potential to grow the dividend in the medium term.

Guidance on Expense Growth: Going forward, NAB expects to continue to target broadly flat expense growth for FY19 and FY20 excluding large notable expenses like customer related remediation and restructuring-related costs.

The stock has yielded a YTD return of 9.27%. NAB exhibited decent operational performance coupled with strong key ratios as per the industry standards. Moreover, with the key financials improving over the half yearly period, we expect NAB to perform better going forward. Hence, we give a “Buy” recommendation on the stock at the current market price of $25.910 (up 0.349% as on 09 May 2019).
 

Premier Investments Limited

Record Sales & EBIT From Premiere Retail: Premier Investments Limited (ASX: PMV) owns and operates a range of retail, consumer products and wholesale businesses with two broad segments of retail and investments.

The Board has declared an increased record interim ordinary dividend of AUD 0.330 to be paid on June 14, 2019, on the back of continued strength of Premier’s balance sheet and the strong performance of Premier Retail. The ex-date and the record date for the dividend are May 30, 2019, and May 31, 2019, respectively.


1H FY19 Key Financial Parameters (Source: Company Reports)

The Group recorded a net profit after income tax for the half-yearly period of $88.8 million as compared to $78.6 million in the previous corresponding period, an increase of ~13%, primarily driven by the performance of Premier Retail. Total sales are up by 8.0% to a record $680.2 millionduring the period of 1H19, driven by Apparel Brands delivering strong sales growth in 1H19 with sales up 7.5% and online sales of $75.7 million up by 35.2%.

Among the key ratios, the ROE and pre-tax ROA stood at 6.5% and 6.9% for the reported period which implies an increase by 610 bps and 590 bps respectively on the previous period.

Long-term strategies: The company’s long-term strategy helped to achieve strong results with key long-term foreign currency hedging policies allowing for long-term merchandise planning, investing in better merchants and delivering a better product, ongoing focus on disciplined execution of markdown management.

On the price-performance front, the stock has yielded a YTD return of 14.36%.The company enjoys a strong balance sheet with record financial performance in 1HFY19 by largely supported by Premiere retail. Moreover, with strong gross-margin strategies and decreased cost of doing business, the company is firmly placed for a robust performance going forward. Hence, considering the aforesaid facts, we recommend a “Buy” on the stock at the current market price of $16.670 per share (up 1.092% in 9 May 2019).
 

Pendal Group Limited

Uncertain Market Scenario: Pendal Group Limited (ASX: PDL) is into the financial sector with its operations in global asset management. The company has recently announced to pay a dividend of AUD 0.200 on ordinary fully paid shares with an ex-date of Thursday, May 23, 2019 and a record date of Friday, May 24, 2019. The payment date for the dividend is Wednesday, June 26, 2019.


Key Metrics 1HFY19 (Source: Company Reports)

The cash net profit after tax stood at $84.5 million, down by 26%compared to the previous corresponding period, however the statutory net profit after tax (NPAT) stood at $69.6 million, down 37%, primarily impacted by significantly lower performance fees, down 91% to $4.4 million compared to $47.6 million in the prior corresponding period.

Closing Funds Under Management as at 31 March 2019 was $100.9 billion, representing a one per cent decrease on $101.6 billion as at 30 September 2018, which was affected by significant negative market movements in the December quarter.

Company Prospects Going Forward: The company will remain focused on expanding its investment and distribution capabilities, maintaining a disciplined approach to managing capacity and provide ongoing support to the investment talent through its investment-led culture and business model.

The March quarter saw a market recovery as expectations grew that the US Fed would not be raising rates, and some progress was made on the trade front between the US and China.Still, there was significant market volatility particularly in the December quarter, where US rate policy, tightening financial conditions and a deepening concern regarding economic growth placed significant pressure on equity markets. Additionally, with the volatility, Brexit uncertainty resulted in cautious investor sentiment.

The stock remained volatile with its negative returns of 6.82% and 19.59% over the past three months and one-month period, respectively. Driven by the market uncertainty along with the subdued financial performance during the first half of FY19, we have a wait and watch view on the stock at the current market price of $7.530 (up 0.266% on 9 May 2019).
 

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