Shares in National Australia Bank Ltd (ASX :NAB) hit their lowest level in over two and a half months on Thursday morning when the company released first half earnings that fell short of analyst expectations.
Earnings rose 8.5% year on year, net profit increased by nearly 16%, and the bank declared a record interim dividend of 99 cents per share, however it was the revenue number that disappointed investors. NAB's revenue from ordinary activities rose by 4.2% to a tad over $9.2 billion, however it fell short of the $9.5 billion expected by analysts.
Short Term Reaction
NAB's shares opened down 1.8% at $33.35 on Thursday as investors digested the result but interestingly recovered throughout the day to close just shy of the intra-day high of $34.17. It appears that throughout the day investors digested the result and decided that the revenue miss wasn't actually all that bad.
A Buying Opportunity
Investors are refusing to give NAB the benefit of the doubt after years of poor operational performance and acquisitions. Outgoing CEO Cameron Clyne has been able to largely right the ship and get the most possible out of the company's troubled UK assets so that they are ready for sail in the next 18 to 24 months. Even still, investors haven't bought into the NAB story and have watched returns trail the other three big banks over almost every timeframe up to 5 years.
I feel that NAB's in a better position than investors are giving it credit for. It's trading on a lower price-to-earnings ratio, paying out a better yield and still around 30% off its all-time high hit before the GFC. In comparison, its three big bank competitors are at or very close to all-time highs.
The Big Dividend
Analysts expect NAB to deliver a dividend of 196 cents per share in 2014, which corresponds to a yield of 5.7% or 8.1% grossed up for franking credits. This is the best yield on offer from the big four banks and NAB appears to have the greatest potential share price upside too.
No Cause for Concern
Based on the share price reaction since the results, and the generally positive tone from NAB's management, I don't believe NAB shareholders have too much to worry about.
