Compared to its big bank peers, shares in National Australia Bank Ltd. (ASX: NAB) seem to offer a lot more, but continue to deliver underperformance. What's more they are seemingly cheaper across a number of conventional valuation metrics. So far in 2014 the stock price has fallen 6% while the S&P/ASX 200 Index (ASX: XJO) (INDEX: ^AXJO) is up around 1%.
So could now be the opportunity you've been waiting for, or is this turnaround story never going to turn? I'd like to think it's the latter but history tells us it's not.
However, according to Morningstar's analysts' consensus, NAB is expected to pay a 6.1% fully franked dividend in the coming year which could prove too irresistible for self-managed superannuation funds and those seeking income from dividends. I couldn't blame them either because that's a dividend yield of around 8.8% grossed-up!
NAB's share price woes can be put down to a number of alarming trends including its profitability in the local market and its difficulty paying off a large commercial property portfolio in the UK. However with property prices increasing and the UK economy on the mend, both the Clydesdale Bank and Yorkshire Bank can be expected to lift cash earnings in FY14.
In New Zealand, NAB continues to maintain good profitability with a net interest margin of 2.34% however, given the recent rises in property prices (among other things), there is unlikely to be significant growth stemming from its NZ operations.
In the Australian Banking division (where NAB holds around 21.6% market share of business banking and over 30% of agribusiness) profitability continues to slip. Whilst business lending remains lucrative, NAB's aggressive push into Australian housing has come at the expense of its net interest margin which, in the first half of FY14, was 1.36%.
To buy, or not?
NAB could be the dark horse of the banks in FY14 but given its current valuation I feel it's still not a bargain. Australia and New Zealand Banking Group (ASX: ANZ) and Macquarie Group Ltd (ASX: MQG) seem to have a better upside at current prices.
