National Australia Bank Limited

NAB Details

Issue of Subordinated Notes: National Australia Bank Limited (ASX: NAB) provides banking services, credit and access card facilities, leasing, housing and general finance, international and investment banking, wealth management services, funds management services, etc. As on 18 November 2020, the market capitalization of the bank stood at ~$71.85 billion. The bank has recently announced that it will issue $1,250mn subordinated floating rate medium-term notes which are due in November 2030. The issuance of subordinated MTNs is not likely to have a material impact on the bank’s financial position but will increase the issuer’s shareholder equity.

FY20 Financial Highlights: During FY20, the bank reported an increase in net interest income to $13,877 million from $13,555 million in FY19. However, NPAT of the bank went down to $2,563 million in FY20 from $4,801 million in FY19. This resulted in a fall in statutory basic earnings per share to 82.1 cents in FY20 from 168.6 cents in FY19. During FY20, the bank reported a cash ROE of 6.5% and Common Equity Tier 1 ratio of 11.47%. The bank is moving rapidly to implement its refreshed strategy and has a clear plan for discretionary investment spend program and specific commitments.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The bank retains healthy foundations for technology, which may result in improved resilience, lower cost, and enhanced customer experience. It is focusing on growing its share in target segments, while managing risk and pricing disciplines. The bank is focused on simplifying processes and policies for home and business lending and is also prioritizing a simpler transactional banking system. It is targeting to offer enhanced data and analytics to customers and colleagues and growing its digital bank.

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

Price to Book Value Multiple 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 is focused on maintaining a decent financial position to target growth opportunities. The bank reported an increase in total investments to $105,292 million in FY20 and seems well-placed for growth prospects. As per ASX, the stock of NAB is trading slightly above the average 52-weeks’ levels but retains decent potential for further growth. The stock of NAB gave a return of 24.59% in the past three months and a return of 14.89% in the last one month. On a technical front, the stock of NAB has a support level of ~$18.561 and an immediate resistance level of ~$25.038. We have valued the stock using the price to book value multiple based illustrative relative valuation method and have arrived at a target upside of lower double-digit (in % terms). For the said purposes, we have considered Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Macquarie Group Ltd (ASX: MQG) as peers. Considering the current trading levels, decent returns in the past three months, modest long term outlook and key investment risks, we recommend a ‘Buy’ rating on the stock at the current market price of $22.29, up by 2.060% on 18 November 2020.

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

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