IG - NAB first take

IG - NAB first take

On first blush, numbers are numbers are in-line and will probably be described as the weakest results of the three banks that have reported over the past week.

Cash earnings of $2.915 billion were a slight beat on the consensus forecast of $2.885 billion. The result is 3.1% higher on the same period last year, but is right on the middle of the expected range with at least four brokers expecting more than what was delivered. The soft numbers compared to consensus can be attributed to strained revenue streams as NAB hunts for market share.

This brings us to the softest part of the result; its net interest margins (NIM). NAB was expected to have the lowest NIM compared to its peers. It does have the lowest loan rates of the big four, and some of the highest term deposit rates as well, which will always impact this figure.

However, in the quest for market share, NIM has dropped to 2.03% from 2.17% in the corresponding period. The 14 basis-point (bps) drop on the pcp is looking even skinnier when compared to its peers. ANZ dropped 10bps this half to 2.25%, while WBC managed to pick up 2bps to 2.19%; it is over 15 bps up on NAB already and this is eating into revenue and cash profits.

However, once more dividend growth is what most will be watching. With ANZ turning ex-dividend today, a chunky dividend from NAB should entice investors out of ANZ and into NAB. The declared 93 cent fully-franked dividend is a strong start a one cent beat on estimates and three cents on last year. But again this result is only in-line with consensus, and considering WBC offered a 10 cent special dividend above its 86 cents interim dividend, it will probably trump NAB in this stake as well.

What is good to see is its bad and doubtful debts are shrinking, and faster than expected. Non-housing loans dropped 96 bps, while asset quality seems to be looking up with impairments down 23% half on half and 4% year and year.

The much-watched UK portfolio was expected to deteriorate in the first half, as fears of a triple-dip recession in the country were anticipated to hit sentiment. However, NAB has managed to stem the tide of deterioration with the commercial real estate now £5 billion from £5.6 billion at the end of October 2012; it was expected to be lower than this and looks to be stabilising.

The NAB results were expected to be solid and it has managed to deliver this. However, considering market expectations after stellar results from ANZ and WBC, this might be taken as a disappointment. Once more NAB is playing catch up - every time the bank takes a good step forward, its peers continue to skip away.
ends

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