Credit Suisse on the NAB result:
NAB reported (company defined) cash earnings of $5,936mn (up 9% on $5,433mn FY12) which was in line with our $5,963mn estimate and the $5,942mn consensus average. Final DPS of $0.97 (up 8% on $0.90 pcp) was $0.02 better than our estimate and $0.01 better than the consensus average. Refer detailed financials attached. Compositionally the result was weaker than expected with: 1) higher-than-expected costs (restructuring costs, $161mn UK conduct charges); offset by 2) lower-than-expected bad debts (0.33% 2H13 vs. 0.44% 1H13, broadly based); 3) relatively low 2H13 effective tax (27.1% vs. 27.9% 1H13); and with 4) $163mn post-tax UK PPI charges taken as a significant item. Divisionally 2H13 sequential earnings growth was driven by Personal (revenues, bad debts) and UK CRE (bad debts), with a soft Wealth result (insurance additional reserving). Much of this result was in line (margins, equity Tier 1 ratio, impaireds, ROE).
■ Investment Case: Reasonable result with earnings in line (modest UK earnings recovery emerging as expected, strong DPS), but perhaps not justifying NAB’s recent strong share price performance / stock re-rating; accordingly the shares could struggle in the immediate wake of this announcement. What we liked about the result: Solid balance sheet momentum (4% 2H13 sequentially, including housing 5%). What we didn’t like: 1) Negative 2H13E sequential jaws between costs (6%) and revenues (1%); 2) Softer collective provision coverage (0.98% 2H13 vs. 1.03% 1H13).
■ Valuation: NAB currently trades on 13.0x 12-month prospective earnings (8% discount to the major bank peer group vs. a 8% four-year average discount) and a corresponding book multiple of 2.0x.
Expensive!
