National Australia Bank Limited

NAB Details

Appointment Under Executive Leadership Team: National Australia Bank Limited (ASX: NAB) is one of Australia’s leading banks, which provides banking, financial and related services. With respect to its US$100 billion global medium-term note programme, the bank has issued EUR 600 million fixed rate reset subordinated notes due 2031. NAB has recently appointed Angela Mentis as Group Chief Digital, Data & Analytics Officer and Dan Huggins as Managing Director and Chief Executive Officer of Bank of New Zealand.

1H FY21 Results Summary:

• Growth in Earnings: NAB recorded statutory net profit amounting to $3,208 million in H1FY21 as compared to $1,313 million in 1HFY20. In addition, the bank recorded cash earnings of $3,343 million, reflecting a rise of 94.8% over 1H FY20, supported by better credit impairment outcomes.
• Increasing CET1: As on 31^st March 2021, Group Common Equity Tier 1 (CET1) ratio stood at 12.37%, reflecting a growth of 90bps from September 2020.
• Decent LCR and NSFR: The bank has surpassed regulatory minimums of 100% with LCR (Liquidity Coverage Ratio) and NSFR (Net Stable Funding Ratio) of 136% and 122%, respectively, at the end of 1H FY21.

CET1 Trend (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19: The bank’s financial numbers are exposed to risk arising from the uncertainties created by COVID-19.
• Regulatory Risk: New compliance requirements from RBA and any regulatory authority may lead the bank to regulatory risk.

Outlook:

• NAB is well-positioned to support a business-led discovery, and its key priorities revolve around maintaining balance sheet strength and supporting its customers.
• The bank anticipates to reset capital and dividends for a more normal operating environment as greater clarity over recovery emerges.
• The bank has scheduled to release FY21 results on 9 November 2021 and will conduct the 2021 Annual General Meeting on 17^th December 2021.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: On the back of growth in cash and statutory earnings in 1H FY21, the bank managed to pay an interim dividend of 60 cents per share. In the past six and nine months, the stock of NAB has provided returns of 4.50% and 18.91%, respectively. The stock has been valued using P/BV multiple-based illustrative relative valuation and arrived at a target price of high single -digit upside (in % terms). The company can trade at a slight premium to its peers’ median P/BV multiple, considering the improvement in earnings and improving balance sheet strength. For the purpose of valuation, peers such as Australia and New Zealand Banking Group Ltd (ASX: ANZ), Westpac Banking Corp (ASX: WBC), and Commonwealth Bank of Australia (ASX: CBA) and others have been considered. Considering the expected upside in valuation, improved earnings, decent LCR and NSFR ratios, and current trading levels, we recommend a ‘Hold’ rating on the stock at the current market price of $27.350, up ~1.034% as on 24 September 2021.

NAB Daily Technical Chart, Data Source: REFINITIV  

Australia and New Zealand Banking Group Limited

ANZ Details

Signing of Agreements: Australia and New Zealand Banking Group Limited (ASX: ANZ) provides banking and financial products and services to individual and business customers. Recently, the bank has inked an agreement with CMC Markets in order to transition customers from its ANZ Share Investing platform to a CMC Markets-branded platform. The agreement is in line with its strategy to simplify the bank, and it is expected that customers may start to see CMC Markets branding on the platform over the upcoming 12 to 18 months.

1H FY21 Financial Summary:  

• Increasing Earnings: During the first half-year of FY21, ANZ recorded a cash profit of $2,990 million as compared to $1,413 million in 1H FY20. The bank reported a statutory profit after tax of $2,943 million against $2,032 million in 2H FY20. This was mainly benefited from a net credit provision release of $491 million.
• Improving Costs: The bank recorded an improvement of 2% in costs and boosted its investment in new digital capability which is likely to provide ongoing productivity improvements as well as better customer outcomes.
• Strengthened Capital Position: ANZ also cemented its capital position with a Common Equity Tier 1 ratio of 12.4%, which remained above the benchmark set by the Australian Prudential Regulation Authority.

Cash Profit Trend (Source: Analysis by Kalkine Group) 

Key Risks: 

• Forex Headwinds: Any unfavorable movement in foreign exchange may lead the bank to financial losses.
• Regulatory Approvals: The bank requires regulatory approvals for carrying out its operations in an efficient manner; Any delay could create business risk.

Outlook: 

• On a financial and operational basis, the bank is in a strong position. In addition, it is well capitalized and disciplined approach to costs over many years has placed ANZ in a decent position to invest in opportunities to enhance its business in targeted segments.

• The bank has scheduled to release its FY21 results on 28^th October 2021.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  The bank closed 1H FY21 with increased ROE and Cash EPS of 9.7% and 105.3 cents against 4.7% and 49.9 cents, respectively. In the nine months, the stock of NAB has provided returns of 19.01%. The stock has been valued using P/BV multiple-based illustrative relative valuation and arrived at a target price of high single -digit upside (in % terms). The company can trade at a slight premium to its peers’ median P/BV multiple, considering the improvement in earnings and improving balance sheet strength. For the purpose of valuation, peers such as National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), and Commonwealth Bank of Australia (ASX: CBA) and others have been considered. Considering the expected upside in valuation, strengthened capital position, improved costs, and current trading levels, we recommend a ‘Hold’ rating on the stock at the current market price of $27.410, up ~0.109% as on 24 September 2021.

ANZ Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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