Over the past 10 years shares in National Australia Bank Ltd (ASX: NAB) have hugely underperformed their peers.
Indeed the share prices of Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) are up 156% and 81%, respectively, versus just an 18% appreciation from NAB shares. The S&P/ASX 200 (INDEX: ^AXJO) (ASX: XJO) is up 39% over the same period.
And in 2014 little has changed, with NAB returning just 2.55% for the year.
| Share price at market open, January 2 2014 | Grossed-up dividends paid (cents per share)1 | Recent share price | Total Return | |
| NAB | $34.85 | 282.85 | $32.91 | 2.55% |
| CBA | $78.09 | 572.86 | $81.19 | 11.31% |
| Westpac | $32.45 | 260.00 | $33.20 | 10.32% |
| S&P/ASX 200 | 5352.2 | 5402.1 | 0.9% |
Source: Google Finance; 1Source: ASX website
NAB's poor performance relative to its peers can be put down to its UK exposure, an economy which was hit much harder than ours during the fallout of the Global Financial Crisis (GFC).
As a result of its exposure to the UK commercial property market, NAB was left with a huge amount of bad loans which were subsequently integrated into the main bank in 2012. Despite divesting over $1 billion worth of the portfolio in mid-2014, it continues to plague management.
Indeed over the years CEOs have come and gone expecting to turn NAB's fortunes around. Unfortunately for shareholders that hasn't happened and just recently the bank announced a 9.8% decline in cash profit as a result of $1.5 billion of conduct provisions and impairments.
Could 2015 be the year for NAB?
Since taking over the reins as CEO from Cameron Clyne in August 2014, Andrew Thorburn has overseen a number of changes that bode well for the bank long term.
For example NAB has partially divested its US bank and will look to do the same with its assets in the UK. Over time, the value of its run-off portfolio is also expected to decline.
Moving forward analysts are forecasting NAB's earnings per share to return to their usual slightly positive trajectory. Currently shares trade on a forward price-earnings ratio of 12 and dividend yield of 6.3% fully franked.
Buy, Hold, or Sell?
There is good reason to expect a better performance from NAB in 2015, when compared to 2014. However as noted above, NAB isn't without its weaknesses and many investors have held their breath believing the bank was ready to stage a turnaround, only to be disappointed. I wouldn't be surprised to see NAB shares outperform the market in the coming year but I'm taking a cautious approach and leaving it on my watchlist until we get more news on the progress of its divestment from the UK.
