NAB share price: What’s the outlook following Q1 trading update?

We look at the highlights from the bank’s first quarter trading update, released on 16 February.

NAB share price rises on Q1 update

Last week we discussed some of the key things investors should consider before the National Bank of Australia (NAB) reported its Q1 results. Some of these included the fact that analysts remained upbeat on the stock despite the myriad of headwinds facing the sector; we also looked at what Morgan Stanley was expecting the bank to report as part of its Q1, including:

  • A CET1 ratio of ~11.5%
  • Lower revenue and higher expenses,
  • Cash earnings were expected to come in at around $1.39 billion

So, what happened?

NAB’s capital position was stronger than expected, while its revenue fell harder than, but its costs came in lower, against Morgan Stanley’s estimates.

Unpacking the key figures from the quarterly (Q1) release, from an earnings perspective, NAB reported unaudited statutory net profits of $1.70 billion against unaudited cash earnings of $1.65 billion. On an ex-notable items basis, the bank said that cash earnings were up an impressive 47%.

Beyond that, the bank’s capital position remained robust, with NAB reporting a CET1 ratio of 11.7%.

Promisingly, the bank said its expenses had fallen during the quarter, a fact which was attributed to 'productivity benefits and lower restructuring related costs.' Looking ahead, management noted that it was expecting expense growth of between 0% to 2% across FY21.

Yet maybe it was NAB’s Q1 credit impairment charges that were most surprising. They fell sharply in the quarter – dropping 98% from the prior quarter – hitting just $15 million in 1Q.

'This primarily reflects 2H20 top-ups to the Economic Adjustment (EA) and forward looking adjustments (FLAs) which did not reoccur in 1Q21,’ the bank said. Morgan Stanley was predicting Q1 impairment charges of approximately $350 million.

Finally, focusing in on NAB’s loan book, the bank said that some $38 billion of home loans were in a state of deferral, compared to some $19 billion worth of business loans, which were also in a state of deferral. Despite those numbers, it was noted that as of February 3, 'the bulk of customers exiting deferrals have resumed repayments [...] but a small cohort are requiring further assistance.'

The outlook: Momentum builds

Looking ahead, Ross Mcewan, NAB's Chief Executive Officer, said:

'Implementation of our strategy is proceeding well as we investing for the long term and focus on initiatives that make a real difference to our customers and colleagues. While there is still much to do, it is pleasing to see momentum building in our core businesses as we simplify and streamline our processes and policies and enhance our digital offerings.'

Investors too, seemed receptive to NAB’s Q1 update, with the stock up 1.38% to $25.64 per share, by 2:59 PM.

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