National Australia Bank Limited

NAB Details

Announced the Sale of BNZ Life Insurance Business: National Australia Bank Limited (ASX: NAB) is a financial services provider of international banking, investment banking, wealth management solutions in New Zealand and Australia. On 16 December 2020, NAB announced that it has entered into an agreement to sell its New Zealand life insurance business, BNZ Life, to Partners Life for NZ$290 million. The transaction is expected to increase NAB’s Common Equity Tier 1 (CET1) ratio and will also allow the bank to focus more on its core banking businesses across Australia and New Zealand.

FY20 Result Highlights: For FY20, NAB reported a statutory net profit of $2,559 million and cash earnings of $3,710 million. Over the year, the banks’ revenue declined by 1.4%, reflecting lower fee income given COVID-19 fee waivers and reduced transaction volumes in merchant acquiring and cards activities. NAB paid a total dividend of 60 cents per share for FY20, comprising interim and final dividend of 30 cps each. At the end of FY20, the company’s CET1 ratio stood at 11.47%.

Dividend Trend (Source: Company Reports)

Outlook: Looking ahead, the company is focused on growing share in target segments, while managing risk and pricing disciplines. In the next 3-5 years period, the company intends to achieve a double-digit Cash ROE. NAB intends to release a trading update on Q1FY21 on 16^th February 2021.

Valuation Methodology: Price to Book Multiple Based Relative Valuation (illustrative)

P/BV Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: As on 16^th December 2020, the market capitalisation of the company stood at ~$77.834 billion. The stock of NAB gave a positive return of 37.66% in the past three months and a positive return of 24.52% in the past six months. The stock of NAB has a support level of ~$20.788 and a resistance level of ~$27.50. We have valued the stock using the Price to Book Value multiple based relative valuation method and have arrived at a target upside of high single-digit (in % terms). For the purpose, we have taken peers like Westpac Banking Corp (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group Ltd (ASX: ANZ), etc. Considering the decent returns in the last six months, improved CET1 ratio, modest outlook, a track record of paying decent dividend, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $23.61, up by 0.983% on 16^th December 2020.

NAB Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Commonwealth Bank of Australia

CBA Details

Agreement to Merge Aussie Home Loans with Lendi: Commonwealth Bank of Australia (ASX: CBA) offers financial services and solutions in Australia and New Zealand. The bank has various business divisions such as Retail Banking and Business & Private Banking. CBA recently entered into an agreement to merge Aussie Home Loans (Aussie) with Lendi, a leading online home loan platform. The merger is expected to support the growth of the existing businesses and will deliver a range of additional benefits over time for customers and brokers. Once the merger is completed, CBA and Lendi will hold 45% and 55% shareholding, respectively in the combined business. This transaction will be completed by mid of CY2021, subject to ACCC approval and other conditions.

FY20 Result Highlights: For FY20, the bank reported Statutory NPAT of $9,634 million, up by 12.4% on pcp, supported by decent business performance and gains from sale of divestments. The net interest margin of the Bank was 2.07% in FY20, down by 2 basis points on FY19, due to lower interest rates conditions partially offset by short term funding costs. The cash NPAT was $7,296 million in FY20, down by 11% on FY19 due to COVID-19 related loan impairment expense. For the full year, CBA paid a total dividend of $2.98 per share, down by 31% on FY19.

Dividend Summary (Source: Company Reports)

Outlook: Looking ahead, CBA aims to maintain a resilient balance sheet and drive operational results efficiently to deliver value to its shareholders. The bank intends to maintain its focus on retail, business and digital banking to further extend its franchise strength and will innovate for future growth.

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

Price to Book Value based Market Multiple Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The stock of CBA gave a return of 27.62% in the past three months and a return of 20.49% in the past six months. The stock is inclined towards its 52-weeks’ high level of $91.05. The stock of CBA has a support level of ~$78.832 and a resistance level of ~$86.168. We have valued the stock using Price to Book Value based market multiple valuation method and have arrived at a correction of low single-digit (in % terms). Hence, considering the decent returns in the past few months, valuation and current trading levels, we suggest our investors to wait for a better entry level and recommend an ‘Expensive’ rating on the stock at the current market price of $83.850, up by 0.938% on 16th December 2020.

CBA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.