National Australia Bank Limited

NAB Performed Amid Challenging Operating Environment: National Australia Bank Limited (ASX: NAB) offers banking and wealth services catering both corporates and retail clients across New Zealand and Australia. NAB is one of the leading banks across Australia and New Zealand region, listed on ASX in 1974.

The bank recently informed that NAB and its associated entities are ceased to be a substantial holder in Healius Limited from 20 August 2019 and Link Administration Holdings Limited from 12 August 2019.  

The bank recently updated about the commencement of civil proceedings on Introducer Program by Australian Securities and Investments Commission (ASIC) wherein ASIC claimed that the bank alleged contraventions of section 31 of the National Consumer Credit Protection Act (Credit Act) in relation to 297 loan applications during 2013 to 2016. ASIC also claimed that NAB breached the Credit Act by receiving information from introducers that crossed the Bank’s limited remit of ‘spot and refer’. Commenting on this, the Management reiterated its decision, taken on March 2019, to end up the referral payments to introducers along with the remediation program initiated in November 2017 to assist the impacted customers.

Recently, with a media release, NAB updated about interest payment per security of AUD 0.55326027 on its securities NABHA - HYBRID 3-BBSW+1.25% PERP SUB EXCH NON-CUM STAP with interest rate of 2.1950% per annum. Ex and payment date for the same are set at October 30, 2019 and November 15, 2019, respectively.

Q3FY19 Trading Update: NAB posted revenue growth of 1% on sequential basis, owing to SME credit growth during the quarter. Statutory net profit came at $1.70 bn along with cash earnings of $1.65 bn during 3QFY19. The bank reported growth in SME lending segment and an improvement in NIMs (Net Interest Margins) aided by lower short-term wholesale funding costs. Expenses during Q3FY19, came flat driven by ongoing productivity savings from the transformation program, compensating on higher compliance and risk costs. On q-o-q basis, NAB reported 1% increment in cash margins during the quarter. At the end of June quarter, Common Equity Tier 1 (CET1) ratio of the bank remained unchanged at 10.4% against Q2FY19, excluding $1 billion (25bps of CET1) of 1H19 Dividend Reinvestment Plan underwrite proceeds, which has been received in July 2019. The bank reported its Liquidity Coverage Ratio (LCR) quarterly average of 128% compared to 130% during Q2FY19. Net Stable Funding Ratio (NSFR) at the end of the quarter stood at 113%.


3Q19 Financial Highlights (Source: Company Reports)

NAB reported good quarterly growth across SME lending segment along with higher revenue growth and improvement in operational efficiencies. The management cited that the banking industry is going through challenging times due to increasing operational expenses and subdued growth in the home lending segment. The bank reported a decline in over-the-counter transactions and in call centre volumes by 27% and 18%, respectively, during the quarter.

Stock Recommendation: At the current market price of $27.340, the stock of NAB is available at a Price to book value of 1.5x on TTM basis against industry average of 2.6x. NAB has a market capitalization of ~$78.97 bn as at 23 August 2019. Annual dividend yield for NAB stood at 6.2% compared to the industry average of 5.1%. Looking at the historical price performance, the stock has delivered gains of 4.74% and 10.94% in the last three-months and six-months, respectively. Considering the current valuation and improvement in cash margins, NIMs and other financial ratios, we believe that the bank, on the face of challenging industry scenario, is well versed to retain the growth in coming quarters. However, we advise investors to keep a close track on the updates related to civil proceedings by ASIC and customer remediation program. Given the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $27.340, down 0.183% as at 23 August 2019 from its previous close.

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