The stock of National Australia Bank Limited (ASX: NAB), a leading financial institution in Australia, ended today’s trade at a price of $29.300. On a year to date basis, the stock has provided a return of 23.28% as on 16 September 2019. It is to be noted that NAB’s stock is trading very near to its 52 weeks high price of $29.340.
Lately, it has been observed that many brokers are having positive opinions about NAB and are recommending investors to buy NAB’s shares.
Trading Performance in 3Q FY19
For the previous quarter i.e., June quarter, NAB had reported solid results which majorly influenced the opinions of different market participants about NAB. In the June quarter, NAB was able to earn an unaudited statutory net profit $1.70 billion and unaudited Cash earnings of 1.65 billion while maintaining a stable asset quality. The growth in the SME lending business was the major highlight of NAB’s June quarter performance.
June quarter Highlights
- Compared with the 1H19 quarterly average, NAB’s cash earnings were up 1% (excluding customer-related remediation)
- the revenue was up 1% reflecting growth in SME lending and a slightly higher group margin;
- Expenses were flat given ongoing productivity savings from the transformation program, compensating for higher compliance and risk costs;
- Net interest margin increased primarily due to lower short-term wholesale funding costs;
Over the quarter, the bank was also able to maintain its key ratios. Key ratios as at 30 June 2019 are as follows:
- Group Common Equity Tier 1 (CET1) ratio of 10.4%, compared with 10.4% at March 2019, but excludes $1 billion (25bps of CET1) of 1H19 Dividend Reinvestment Plan underwrite proceeds, which were received in July
- Net Stable Funding Ratio (NSFR) of 113%.
- Leverage ratio (APRA basis) of 5.4%
- Liquidity Coverage Ratio (LCR) quarterly average of 128%.
CET1 Ratio Graph (Source: Company Reports)
Over the quarter, NAB was also able to maintain its asset quality. If compared to the 1H19 quarterly average, the credit impairment charges increased by 10% to $247 million in June quarter, however, this was slightly lower than the charges reported in the previous quarter (refer below image).
Credit impairment Charges Graphs (Source: Company Reports)
Philip Chronican (NAB CEO) Comments on third quarter performance
- NAB’s transformation remains on track, with SME lending growth over the quarter a highlight as its ‘Best Business Bank’ initiatives deliver better customer outcomes;
- NAB’s focus on being simpler and faster for its customers has resulted in a 27% reduction in over- the-counter transactions and an 18% reduction in call centre volumes since the transformation began;
- Customer remediation programs and regulatory compliance investigations are continuing with potential for additional costs.
At a time where Australia’s financial industry is operating under challenging environment, NAB’s third quarter performance has provided a positive momentum to the bank.
Challenging Economic Environment
- Slowing GDP growth, expect 2% in 2019
- Unemployment low at 5%, but low wages growth
- Slowing housing credit growth (~3% annual growth expected in FY19 and FY20)
Despite operating in challenging operating environment, NAB has taken several initiatives to improve its customers experience:
- Reduced customer wait time for transaction information in Mobile, Internet Banking and NABConnect from 5+ days to same day
- Expanded business transaction straight-through-processing platform to include trust accounts – now capable of onboarding 82% of all business customers within 30 minutes
- Core banking platforms now link eligible credit cards automatically to Home Loan packages. Reducing annual fee related complaints by ~2k per annum
- Enabled business customers to view their leasing account details on mobile Internet Banking
- Proactively reminding customers each month of outstanding credit card payments, resulting in fewer late payment fee complaints
- Launched an initiative from February to simplify and reduce fees, with 67 fees removed by the end of June
- Pledged $2 billion of funding over five years to help emerging technology companies build and grow their businesses
- Announced a partnership with ClimateWorks Australia to enable farmers to adopt sustainable and profitable land management practices.
H1 FY19 Results
For the first half of FY19 also, NAB had reported solid results which included 7.1% growth in cash earnings (including restructuring-related costs & customer-related remediation), 3.7% growth in Diluted Cash EPS and 4.3% growth in statutory profit, as compared to pcp.
For the H1FY19, NAB reduced the dividend by 16.2% to 83 cents per shares to improve capital generation. The reduction in dividends also provided increased flexibility to accommodate earnings volatility, further regulatory changes as well as RWA (Risk-weighted asset) growth.
NAB’s Leadership Transition
New Zealand-born, former Australian banking industry executive, Mr. Ross McEwan was recently appointed by NAB as its new CEO and MD.
Who is Ross McEwan?
- A senior, global financial services executive with deep experience in international markets and long-standing knowledge of the Australian banking environment;
- Currently serving as the CEO of Royal Bank of Scotland
- Joined RBS Group as CEO UK Retail in 2012 from the Commonwealth Bank of Australia, where he had been Group Executive for Retail Banking Services for five years
- Qualifications- Bachelor of Business Studies, Massey University, New Zealand
As per NAB Chairman-elect Philip Chronican, Ross McEwan is the ideal leader for NAB as he is bringing a compelling range of experience across finance, insurance and investment sectors.
Now, let’s take a look at the stock performances of few other leading banks of Australia.
Westpac Banking Corporation (ASX: WBC)
In the past six months, the stock of WBC has provided a return of 11.39% as on 16 September 2019. The stock is trading at a PE multiple of 14.330x with an annual dividend yield of 6.36%. At market close on 17 September 2019, WBC’s stock was trading at a price of $29.630 with a market capitalisation of circa $103.09 billion.
Australia and New Zealand Banking Group Limited (ASX: ANZ)
ANZ’s stock has gained 15.67 per cent on a year to date basis. The stock is trading at a PE multiple of 12.600 with an annual dividend yield of 5.8%. At market close on 17 September 2019, ANZ’s stock was trading at a price of $27.750 with a market capitalisation of circa $78.23 billion.
Commonwealth Bank of Australia (ASX: CBA)
In the past six months, the stock of CBA has provided a return of 13.76% as on 16 September 2019. The stock is trading at a PE multiple of 16.820x with an annual dividend yield of 5.28%. At market close on 17 September 2019, CBA’s stock was trading at a price of $82.240 with a market capitalisation of circa $144.61 billion.
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