Goldman Sachs maintains Buy on NAB
May 7, 2010
GSJBW retained their BUY recommendation on NAB after the Melbourne based bank reported its 1H10 result. The broker’s favourable rating is based on a compelling growth profile and relatively cheap valuation.
GSJBW says the result was characterised by a flat net interest margin outcome, weaker non interest income and a better than expected bad debts charge. While the 1H10 result didn’t necessarily paint a positive picture, GSJBW notes that it expects earnings growth to improve in FY11.
This expectation is driven by a favourable outlook for business lending, a recovery in momentum for the retail business, an improving outlook in the UK and ongoing momentum in wealth management.
Despite the favourable growth profile, GSJBW notes that NAB continues to trade on an 18% FY11 PE discount at 9.1x and a 25% FY11 P/BV discount to peers at 1.4x.
“As such, NAB is our preferred sector exposure,” the broker concludes.
However, UBS points to a dilemma faced by all the major banks to varying degrees. UBS notes that NAB expects to see better loan momentum in the second half of FY11 with market share gains in Mortgages and a strong business credit pipeline.
However, the broker says that as NAB’s lending accelerates, its funding task will rise rapidly placing pressure on its average funding costs. With limited upside to reprise loans, this will lead to “large” margin pressure.
GSJBW says the result was characterised by a flat net interest margin outcome, weaker non interest income and a better than expected bad debts charge. While the 1H10 result didn’t necessarily paint a positive picture, GSJBW notes that it expects earnings growth to improve in FY11.
This expectation is driven by a favourable outlook for business lending, a recovery in momentum for the retail business, an improving outlook in the UK and ongoing momentum in wealth management.
Despite the favourable growth profile, GSJBW notes that NAB continues to trade on an 18% FY11 PE discount at 9.1x and a 25% FY11 P/BV discount to peers at 1.4x.
“As such, NAB is our preferred sector exposure,” the broker concludes.
However, UBS points to a dilemma faced by all the major banks to varying degrees. UBS notes that NAB expects to see better loan momentum in the second half of FY11 with market share gains in Mortgages and a strong business credit pipeline.
However, the broker says that as NAB’s lending accelerates, its funding task will rise rapidly placing pressure on its average funding costs. With limited upside to reprise loans, this will lead to “large” margin pressure.
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