Is the National Australia Bank Ltd (ASX: NAB) share price a buy right now?
The major ASX bank has seen its share price go up 31.4% since 22 May 2020. That's an astonishing return in a short amount of time for such a big business.
Investors are getting more confident that the Australian economy won't be harmed by the coronavirus as much as first feared. The overestimation of the cost of jobkeeper is a great example of things looking better than previously expected.
There is still a lot of economic pain out there. NAB included an $807 million provision for potential COVID-19 impacts in its FY20 half-year result. There's a reason why investors sent the NAB share price lower. Only time will tell whether that provision was too much or too little.
NAB has been showing a rising level of loan arrears in recent reports. The 90+ day past due arrears of total loans was 0.71% at the end of FY18, 0.79% in the first half of FY19, 0.93% at the end of FY19 and 0.97% in the recent FY20 half-year result. That's not a good trend.
Could the NAB share price still be an opportunity?
Several weeks ago I thought the NAB share price was cheap if the economy recovered quicker than expected.
However, the strength of the NAB share price changes the value.
Low interest rates seem like they're here to stay. This could cause the NAB net interest margin (NIM) to come under even more pressure. The NAB share price will follow earnings over time.
I like that NAB is investing in lifting skill levels, according to the Australian Financial Review. I also like the new NAB leadership team.
Who knows what's going to happen with the NAB dividend this year? At the moment it has an annualised grossed-up dividend yield of 4.25%. However, if the economy is better than expected then perhaps the final dividend will be larger. I wouldn't count on big dividends this year though.
Ultimately, I don't see much compelling value at the current NAB share price. There are still risks to be wary of.
