Stocks’ Details

National Australia Bank Limited

Decent Growth in CET1 Ratio: National Australia Bank Limited (ASX: NAB) provides banking, financial and related services. The market capitalisation of the bank stood at $80.09 billion as on 3^rd February 2021. Recently, the bank has reached a scheme implementation agreement for the acquisition of 100% stake in 86 400 Holdings Ltd, which is the holding company of Australian neobank, 86 400 for the consideration of around $220 million. The bank added that the combined business would deliver accelerated innovation and an enhanced customer experience to create a stronger and more competitive banking alternative for Australian customers. During FY20, the bank recorded a statutory net profit of $2,559 million as compared to $4,798 million in FY19. Cash Earnings for the period amounted to $4,733 million against $6,389 million in FY19. As on 30^th September 2020, the bank recorded a group common equity tier 1 (CET1) ratio of 11.47%, which rose by 109bps from September 2019.

CET1 Ratio (Source: Company Reports)

Outlook: Looking forward, the bank is progressing well with its strategy of creating a simpler and more accountable business. In addition, the bank is focused on its customers and colleagues for generating sustainable performance over time. In addition, the bank has scheduled to release its Q1 FY21 results on 16^th February 2021.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Price to Book Value Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The bank closed FY20 with Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NFSR) of 139% and 127%, respectively, both were above the APRA regulatory requirement of 100%. In the past one and three months, the stock of NAB has provided positive returns of 8.11% and 32.56%, respectively. We have valued the stock using the price to book value multiple based illustrative relative valuation and have arrived at a target price of low double-digit (in percentage terms). For the purpose, we have taken peers such as Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC), to name few.  On a technical front, the stock has a support level of ~$22.258 and resistance level of ~$29.226. Thus, considering the growth in CET1, decent level of NSFR and LCR, and outlook, we give a “Buy” recommendation on the stock at the current market price of $24.710 per share, up by 1.938% on 3^rd February 2021.

Virgin Money UK PLC

Growth in Customer Deposits and Business Lending: Virgin Money UK PLC (ASX: VUK) provides banking products and services. The market capitalisation of the company stood at $3.53 billion as on 3^rd February 2021. The company experienced a profitable and positive Q1 FY21, supported by the growth of 0.9% in customer deposits to £68.1 billion. Business lending for the quarter increased by 0.1% to £8.9 billion. Net Interest Margin (NIM) for the period was stable at 152bps, which was in line with expectations. CET1 ratio for the quarter rose by 50bps to 13.9%, which was aided by lower RWAs driven by planned initiatives & HPI increases.

Key Metrics (Source: Company Reports)

Outlook: For FY21, VUK anticipate NIM to be broadly flat on FY20 levels and non-interest income to remain subdued. In addition, underlying operating cost for FY21 to be less than £875 million.

Stock Recommendation: The company closed Q1 FY21 with robust funding and liquidity underpinned by the elevated deposit balances from consumers and businesses. The stock of VUK has provided returns of 19.14% and 52.58% in the last one and three months, respectively. The 52-week low-high range for the stock stands at $1.060 - $3.750, respectively. In addition, the stock is trading at a price to book value multiple of 0.4x against the industry median (Financials) of 1.0x on TTM basis. On a technical front, the stock has a support level of ~$1.309 and resistance level of ~$3.764. Thus, considering the decent performance in Q1 FY21, growth in CET1 and robust funding and liquidity, we give a “Buy” recommendation on the stock at the current market price of $2.820 per share, up by 14.634% on 3^rd February 2021, owing to the release of Q1 FY21 results. 

WAM Capital Limited

Takeover offer for Amaysim Australia Limited: WAM Capital Limited (ASX: WAM) is one of Australia's leading Listed Investment Companies, which is managed by Wilson Asset Management. The market capitalisation of the company stood at $1.73 billion as on 3^rd February 2021. Recently, the company announced that the unconditional off-market takeover bid for amaysim Australia Limited is open, wherein, WAM is targeting to acquire 100% stake in amaysim. As per the offer, every amaysim Shareholder may elect to receive 1 WAM Share for every 2.675 amaysim Shares, representing A$0.8561 of implied value per amaysim Share, cash consideration of A$0.70 per amaysim Share or a combination of cash consideration and scrip consideration. WAM offer will close on 30 March 2021, unless extended or withdrawn. For the half-year ended 31^st December 2020 (1H FY21), the investment portfolio provided a return of 22.8% and outperformed All Ordinaries Accum. Index by 7.1%. The company declared fully franked interim dividend of 7.75 cents per share.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company’s ability to continue dividend payment depends on the profit generation and franking credits. In addition, the company would continue to pursue opportunities irrespective of market conditions.

Stock Recommendation: As on 31^st December 2020, the pre-tax NTA of the company stood at $1.80. The stock of WAM has provided returns of 14.65% and 18.61% in the last six and nine months, respectively. The 52-week low-high range for the stock stands at $1.465 - $2.370, respectively. In addition, the stock is trading at a price to book value of 1.4x against the industry average (Investment Banking & Investment Services) of 2.9x on TTM basis. On a technical front, the stock has a support level of ~$2.112 and resistance level of ~$2.369. Hence, considering decent investment portfolio performance, returns in the past months, and dividend payment, we give a “Hold” rating on the stock at the current market price of $2.230 per share, down by 0.447% on 3^rd February 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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