Shares in National Australia Bank Ltd. (ASX: NAB) have again traded lower today, as the S&P/ASX 200 (INDEXASX: XJO) continued on its recent downward trajectory. In the past month NAB shares have fallen nearly 3%.
Although I'm not a buyer at today's prices. There are a number of reasons to be optimistic about NAB's future.
1. The bank has a new boss. Although management teams have come and gone trying to turn the bank around, new CEO Andrew Thorburn has already taken steps which are likely to improve its image amongst investors. These include a partial sale of the bank's bad UK commercial loans and a potential IPO of its U.S. agribusiness and business banking subsidiary, Great Western Bank.
2. Scotland's independence vote is now behind it. Just days ago Scotland's independence vote removed a potential restructuring cost for NAB's UK subsidiary, Clydesdale Bank. Although the bank still faces misconduct related charges, thus far it has avoided estimated costs of between $100 million and $180 million.
3. On comparable terms, NAB looks like the cheapest major bank. Compared to its major bank peers, NAB trades on a lower book value and earnings multiple. It also has the highest dividend yield, currently 5.8% fully franked. This could be one reason why the share prices of its (expensively priced) Australian peers have fallen hard over the past three months, whilst NAB shares have been the only ones to trend higher – currently up 1.2%.
Buy, Hold, or Sell?
NAB shouldn't be ruled out as a candidate for your investment dollars, however, I believe it's certainly a riskier bet than its larger, more efficient peers. Although the three points above appear to put the bank on a good footing moving forward, it's important to remember NAB's troubled past and these three words from legendary investor Warren Buffett, "turnarounds seldom turn."
