Stocks’ Details

National Australia Bank Limited 

Agreement to Sell MLC Wealth: National Australia Bank Limited (ASX: NAB) provides banking, financial and related services. Recently, the bank announced that it has reached a Sale and Purchase Agreement with IOOF Holdings Ltd for selling 100% of MLC Wealth for a purchase price of $1,440 million. This purchase price reflects a multiple of 17.3x MLC’s cash earnings of around $83 million. NAB is also likely to receive around $220 million of surplus cash from MLC in the form of a pre-completion dividend. This divestment is likely to allow NAB to prioritise investment and focus on executing its refreshed strategy of delivering simpler, more streamlined products and processes. On 21st August 2020, the bank announced that it has issued US$1,500,000,000 subordinated notes due 2030 with respect to its US$100,000,000,000 global medium-term note program.

Q3 FY20 Key Highlights: During Q3 FY20, NAB reported an unaudited statutory net profit of $1.50 billion and cash earnings of $1.55 billion. NAB added that the Q3 results were impacted by the current operating environment, volatile markets, subdued credit demand, low-interest rates, cost pressures and declining assets quality.

Financial Metrics (Source: Company Reports)

Future Focus: The bank is positioning its business for a return to growth post COVID-19. NAB is also focused on maximizing organic capital generation.

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

Price to Book Value 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 30th June 2020, CET1 ratio of the group stood at 11.6% against 10.4% of March 2020. At the end of the quarter, liquidity coverage and a net stable funding ratio of the bank stood at 132% and 120%, respectively. On the technical analysis front, the stock of the company has a support level of ~A$16.5 and a resistance level of ~A$20.8. We have valued the stock using the price to book value multiple based illustrative relative valuation method and have arrived at a target price of low double digit-upside (in percentage terms). For the purpose, we have taken peers such as Bank of Queensland Ltd (ASX: BOQ), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), etc. Therefore, considering the future focus, sale of MLC Wealth, decent liquidity, and decent deposit inflow, we give a “Buy” recommendation on the stock at the current market price of $18.08 per share, down 0.768% on 29 September 2020. 

Bank of Queensland Limited 

FY20 Key Updates: Bank of Queensland Limited (ASX: BOQ) is a well-known bank of Australia, with a market capitalisation of ~$2.89 Bn as on 29 September 2020. Recently, the company announced that it has completed its FY20 collective provision modelling and expects FY20 loan impairment expense on pre-tax basis to be $175 million. Further, for FY20, COVID-19 associated collective provision amounts to $133 million, consisting a $10 million provision in 1H20 and a further $123 million provision in 2H20. The company expects to reduce CET1 ratio by 39 basis points (bps), with CET1 coming above the target range of 9.0% - 9.5% at the end of the year, owing to robust 2H20 organic capital generation.

Loan Impairment Expense Details (Source: company reports)

A Look at 1H FY20 Results: During 1H FY20, the bank recorded cash earnings after tax amounting to $151 million with a fall of 10% on 1H FY19, mainly due to restructuring charges and intangible asset review. Net Interest Margin (NIM) for the period stood at 1.89%, reflecting a fall of 3 basis points against FY19. The bank closed the half-year in a well-capitalised position with good liquidity. This follows a $340 million capital raising, which is ensuring stability during economic uncertainty. As on 31st May 2020, the Common Equity Tier 1 Ratio stood at 9.91%. The capital management strategy of the bank targets to ensure adequate capital levels to protect deposit holders.

Key Financial Summary (Source: Company Reports)

Other Recent Updates: Recently, the company informed the market that Ms Vicki Clarkson, GM Corporate Governance & Head of Secretariat, has stepped down from his post in the company, effective 4^th September 2020.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

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

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

Stock Recommendation: The bank is focused on protecting its strong foundations and executing against its strategic plan. The stock of BOQ is inclined towards its 52-week low of $4.510, offering decent opportunities for accumulation. On the technical analysis front, the stock of the company has a support level of ~A$5.661 and a resistance level of ~A$6.85. We have valued the stock using the price to book value multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Australia and New Zealand Banking Group Ltd (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), etc. Thus, considering the decent liquidity position, focus on protecting its strong foundations, capital management strategy and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $5.89 per share, down by 7.244% on 29 September 2020. 

Medibank Private Limited 

A Look at MPL’s FY20 Results: Medibank Private Limited (ASX: MPL) is an integrated healthcare company, engaged in in the business of underwriting and distributing private health insurance policies and health solutions to Australians. FY20, the company reported net profit after tax of $315.6 million, down 27.9% year over year. The group declared dividends of 6.3 cents per share, representing a payout ratio of 90%. The group’s net investment income reached $2.4 million during FY20. Group revenue from external customers stood at $6,769.6 million, up 1.7% year over year. Medibank Health operating profit for the period decreased 12.8% year over year and came in at $461 million. The segment’s gross profit also decreased 8% year over year and came in at $1,014 million.

FY20 Key Highlights (Source: Company Reports)

Outlook: The company remains on track to reach the set objectives and stabilise the brand policyholder volumes by FY21 end. Additionally, the company expects a rise of claims per policy unit throughout FY21. Medibank Private intends to achieve a dividend pay-out ratio in the top end of target range between 75% and 85% of underlying net profit after tax in FY21. Further, the company targets $20 million in productivity savings in FY21 and an additional $30 million during FY22-FY23.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

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

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

Stock Recommendation: The stock of MPL is inclined towards its 52-week low of $2.45, offering decent opportunities for accumulation. The company aims to achieve stronger growth in volumes at a reasonable margin, while maintaining the persistent cost control measures. On the technical analysis front, the stock of the company has a support level of ~A$2.46 and a resistance level of ~A$3.2. We have valued the stock using the price to cash flow multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as NIB Holdings Ltd (ASX: NHF), Bank of Queensland Ltd (ASX: BOQ) and Macquarie Group Ltd (ASX: MQG), etc. Thus, considering the decent liquidity position, capital management strategy, decent outlook, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $2.55 per share, down by 0.391% on 29 September 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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