National Australia Bank Limited (NAB)

By Jason Fittler

The past two and a half months has seen a 12% fall in the price of NAB.

This brings its dividend yield up to 8.7% gross.

Buying NAB at the right price is the key, I would not look to rush in, but buy on weakness. 

NAB’s third-quarter trading update scheduled for 20 August is likely to reveal an unaudited AUD 1.5 billion cash profit following the AUD 2.9 billion for first-half fiscal 2013.

NAB is currently our preferred major-bank exposure due to its cheap relative valuation, attractive earnings upside, an overdue technology upgrade and increasing focus on productivity improvement.

The eventual U.K. exit is set to release surplus capital to shareholders, with NAB’s GBP 2.6 billion equity in Clydesdale Bank subsidiary at March 2013, equivalent to around AUD 4.0 billion.

In our opinion, investors focus too heavily on NAB’s chequered history and are missing potential upside as the bank leverages its dominant Australian business banking franchise and rerates to peer multiples.

Significant upside is possible, with NAB trading on a fiscal 2014 price/earnings multiple of 10.7 times, compared with 13.9 times for Commonwealth Bank (CBA), 11.9 times for Westpac (WBC) and 11.4 times for ANZ Bank (ANZ).

With interest rates expected to fall further, some saying as low as 2.25%, NAB is an attractive alternative.

For the income investors, NAB is a good buy on weakness for those happy to hold long-term.

For more information on National Australia Bank Limited (NAB) please contact us on 07 4771 4577.