Is the National Australia Bank Ltd (ASX: NAB) share price a buy?
The major bank’s share price has done quite well in 2019, it has gone up by 17% not counting the dividend paid.
Investors will be very interested to see whether NAB’s upcoming report has a similar feel as the Commonwealth Bank of Australia (ASX: CBA) report.
If you didn’t see the CBA report yesterday, it said that statutory net profit after tax (NPAT) was down just over 8%, the cash net profit was down 4.7%, the dividend was flat but troublesome and impaired assets increased by $1.3 billion to $7.8 billion from June 2018.
That’s quite a sizeable increase in just one year. Commonwealth Bank blamed downgrades to a small number of corporate exposures and emerging signs of weakness in sectors impacted by consumer discretionary spending and in the agriculture & construction sectors.
Although NAB isn’t identical to Commonwealth Bank, it’s quite likely that it is seeing similar problems in the same sort of areas in the economy. However, I was pleased to see that Commonwealth Bank’s home loan arrears ticked slightly down, although personal loans worsened materially.
Whilst the bank banks aren’t my favourite investment ideas, I’m hoping that NAB, CBA, Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) don’t suffer too much because it would have widespread consequences for the economy.
NAB is definitely on a rollercoaster at the moment. Whilst it has appointed seemingly two safe pairs of hands for the positions of Chairman and CEO, it also faces the accusation that chairman Dr Ken Henry knew the bank was selling prohibited products. Who knows if that will bite the bank in the future or not?
I just don’t see how NAB’s net interest income is going to materially rise over the next couple of years at least.
NAB is currently trading at 12x FY20’s estimated earnings with a projected grossed-up dividend yield of 8.5%. Its price looks interesting compared to the market, but I have reservations about businesses with very large balance sheets of big assets and liabilities.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.