NAB

Australian stock market analyst UBS has provided an Austrlian banking sector update. They have earmarked Westpac (WBC) as the key Buy recommendation in the banking sector. Westpac (WBC) is their key buy post the appointment of Gail Kelly as CEO of Westpac (starts Feb-2008).

Australian banking shares have underperformed the market for a second week running from last week. Despite rising 0.4%, they still underperformed the market by 70bp. The two value plays, WBC and ANZ, rebounded strongly finishing the week up 2.9% and 1.4% respectively. However, partly offsetting this was NAB's underperformance. The bank’s recent UK analyst tour failed to turn sentiment around on the stock, which fell by 2.2% last week. Australian sharemarket analysts Macquarie Research Equities have the following major bank preferences: 1) CBA, 2) WBC, 3) ANZ, 4) NAB, 5) SGB. CBA remains their top pick in the sector with final results and final dividend being announced on 15th August 2007. CBA and WBC continued to dominate local debt market league tables: WBC and CBA continued to dominate the debt market issuance rankings in the June quarter, consistent with recent volume trends reported in their institutional division results. WBC maintained its number 1 position in the Australian syndicated loan market, with 15 issuances and 17.2% market share for the six months ending June. CBA improved its Australian debt market ranking significantly over the last six months, from fourth position a year ago to being number 1, though this partly reflects the large mortgage securitisation issue conducted during the period. This is consistent, though, with the message management put out recently that momentum continues to build within the bank’s institutional division. As a result, rejuvenation of CBA’s institutional banking is also likely to remain a key driver of CBA’s earnings growth in the short term. Personal bankruptcies deteriorate further: Personal bankruptcies in Australia deteriorated slightly further in the June quarter, with year to June bankruptcies increasing by 13% on pcp. Not surprisingly, NSW continued to be the key driver, rising 24% on a year-on-year basis. This is likely to continue to impact arrears levels for the banks in the near term, so far this has not translated into a significant increase in write-offs. The analysts believe that rising bankruptcy rates raise the risk that loss rates will increase more significantly, especially on unsecured personal lending, where these types of lending tend to account for a greater percentage of write-offs. NAB UK downgrades. Post NAB’s UK trip, the analysts have revised their UK forecasts leading to downgrades at the group level of 0.3% in FY07, and 1% in FY08. Their new price target for the Australian bank is $42.80.

National Australia Bank have a $42 share price target and a Neutral 1 broker call from Australian share trading analyst UBS. NAB UK tour preview - Get big or get out: UK turnaround well underway, but momentum has slowed: NAB is progressing in the turn around of its UK business since outlining its “fix & repair” UK strategy in February 2005. It is targeting (a) volume rebuild at sustainable margins (b) cut costs (c) cross sell (d) rollout light infrastructure IFS centres for SME’s in SE England (e) targeted use of mortgage brokers. However, after its initial success growth stalled during 1H07 (despite management’s arguments to the contrary) with flat core earnings. Key issues NAB must address in the UK: (1) 1H07 growth stalled, with the weakest core earnings growth of any division. (2) Market share gains are now limited, with credit growth in line with system. (4) UK margins are too high at 3.16%. We expect these to settle at around 200bp (substantially lower than NAB CEO’s stated target of 250-300bp). (5) Reported UK rev growth was supported by derivative fair value adjustments. (6) Cost out opportunities remain substantial, with a Cost/Income atio of 61.2%. NAB is half pregnant in the UK: They believe NAB must now address the fundamental issue facing its UK business. It generates just 14% of Group NPAT and with c.3% share in one of the world’s most competitive banking markets it must now either get bigger or get out. UK Banks Team cautious on retail banking growth outlook: In recent Reports the analysts' UK Banks Team found if NAB acquired Alliance & Leicester it would be c9% EPS accretive. They also released a detailed Q-Series analysing "Is UK retail banking ex-growth?" Executive Summary within). Their Price Target is based on DCF, SOTP and international peers.

Sharemarket analyst Macquarie Research Equities have provided a 2007/2008 Australian Budget Impact statement. Investors who had been eagerly awaiting the release of the 2007-2008 Budget were last night greeted with a host of initiatives that included a significant boost to household disposable income.

National Australia Bank (NAB) has a retained Outperform broker call from sharemarket analyst Macquarie Research Equities. This Thursday 10th May, NAB, the last of the big banks to report this season, will release its 1H07 results. The analyst expects NAB to announce a robust result, and reiterate that NAB is their no. 1 pick in the sector, following last week’s revisions. With MRE expecting NAB to announce an 86 cent dividend, NAB represents excellent yield plus growth potential. The analyst's forecast adjusted 'cash' earnings of $2,088m (excluding hedge ineffectiveness) and cash EPS
of 128.9 cents, representing 12.6% growth on pcp. An interim dividend of 86 cents is expected. Key Things to Look For: (1) Sequential growth in FY07 expected to be biased to the 1H. Despite the typical seasonality around the Australian banking profit growth being biased to the 2H and the risk of sequentially weaker nabCapital earnings in 1H07, the analysts still expect the group’s sequential profit growth to be a little stronger in 1H07 than 2H07. This reflects a combination of the 1H seasonal bias in UK earnings, our expectation that NAB's loan loss charge will be more stable relative to 2H06 than peers (reflecting more conservative provisioning in NZ in FY06 and 'housekeeping' in Australia in 2H06) and the impact of strong investment markets on investment income. (2) Business lending momentum to remain the key driver in Australia. Despite the slower and continuing competitive SME segment raising doubts around NAB's ability to sustain its superior positioning in this segment, MRE understand the business lending momentum in the Australian region overall has continued in 1H07 with margin pressure less than in previous periods. This of course will be critical given NAB's continuing weaker than peer Australian retail banking performance. (3) 1H07 UK result should be strong. Seasonality and ongoing profit ramp up in NAB’s IFS centres should underpin a very strong UK result this half. In local currency they forecast NAB’s ongoing UK operations to deliver sequential profit growth of 17% and YoY growth of 35%. (4) nabCapital – risk of sequentially lower earnings given lower provision releases and SF contribution. There is a risk that nabCapital’s sequential earnings will be weaker in 1H07 given the spike in lumpy structured financing income in 2H06 and expectations of reduced provision releases following completion of the asset shedding program. Of course, with peers having all reported solid increases in financial markets income, this could provide a positive (albeit lower quality) upside to the analyst's nabCapital forecast. Update on capital management: National Australia Bank (NAB) clearly has capacity to announce further capital management with our forecast that it will still have ~$1.9bn in surplus ACE at September 2007 after completion of the current buy-back program (a little under half of this remaining surplus having already been factored into our buy-back assumptions). The question is whether NAB announces further capital management this week or at the FY07 result. With NA'’s previous rate of buying back stock suggesting the current buy-back would not be completed until around mid-August, it is quite possible NAB will delay further announcements. Action and recommendation: The analyst's expect NAB's 1H07 result to confirm that the bank remains on track to deliver on their expectations. Accordingly, although the stock is trading close to the analyst's price target, they retain their outperform rating pending analysis of the result.

Sharemarket analyst UBS has provided an Australian Banks Update. Sector Update post WBC result: 1H07: CBA-ANZ-SGB-WBC have reported. NAB-MBL to go: FY2007 f'casts are intact (+14% EPSg seen minor upgrades). Results drivers have been strong credit growth, better than expected margins and solid wealth management growth. BDD has been low, although 90 day overdues are drifting up. Share prices have predicted outcomes. Sector Overweight Maintained. Valuations reasonable: The analyst needed more upgrades especially given strong share price performance of banks in April.

Market analyst UBS has provided an Australian banking sector update. System Credit strength continues in March +14.8%: 12 month credit growth at March-07 was 14.8%; comprising a steady increase in housing credit 14%, sound personal credit growth 12.1% & business credit maintaining high levels of growth at 16.6%. March growth was flat on February (revised down by APRA from 15%).

Sharemarket analyst UBS has provided an Australian Banking Sector Update. They have observed a strong reporting season expectations driving outperformance: The banks' reporting season starts this Thursday 26th with ANZ. The analyst expects this to be one of the strongest reporting seasons in several years, with 1H07E EPSg of 8.7% (seq) driving FY07E EPSg of 13.8%. Earnings risk remains on the upside. They expect the banks' outperformance to continue through this reporting season.

Why put your money in a bank if you can own the bank? Australian banks are big performers especially in recent times. So, comparing term deposits versus investing in bank stocks, which is the better performer?

National Australian Bank (NAB) has a reitereated Buy rating from sharemarket analyst Citigroup Investment Research. The analyst anticipates a surprise positive result in 1H07. "Underpromise and overdeliver" is overrated: while peer banks provide periodic updates of their progress against performance targets, NAB gives investors close to zero in terms of guidance. The analyst believes that the relative lack of news flow has constrained its stock price performance. The analyst sees solid momentum in business lending, and an accelerating growth story in the UK. They should underpin the 1H07 result. However structural impediments will remain, while management has taken steps to address issues, the National Australia Bank (NAB) wealth management and institutional businesses are likely to remain less profitable than peer businesses (on ROA). Resumption of buyback will support stock price; the bank postponed its buying in March 2007. Post the result the bank will again resume buying, providing additional support over the next few months.