The National Australia Bank Ltd (ASX: NAB) share price has gone up by more than 9% so far in 2021. Is it a buy right now? Some brokers have had their say.
What’s happening right now with NAB?
The NAB share price is moving about with a bit of volatility at the moment as markets react to the opposing thoughts about interest rates.
On the one hand, RBA governor boss Dr Lowe said that he doesn’t expect the official cash rate to rise for at least three years, unless the economy manages to recover sooner.
However, before today, bond yields had been climbing. The Australian Financial Review quoted Tamar Hamlyn from Ardea Investment Management:
The earlier part of the move was driven by rising inflation expectations because one of the components for bond yields is compensation for inflation. More recently, the increase in bond yields has continued and it has come about by an increase in real yields. If people think that economic growth is going to improve, then real returns – economic growth after inflation – are likely to improve across the entire economy because it’s easier to generate positive returns when the global economy is growing.
It was only a couple of weeks ago that the big four ASX bank released its FY21 first quarter update.
FY21 first quarter
The NAB share price responded positively after revealing it made $1.7 billion of statutory net profit and $1.65 billion of cash earnings.
NAB explained that improving economic trends have been a key driver of the first quarter result, with cash earnings 47% higher than the FY20 second half quarterly average primarily driven by low credit impairment charges. The bank said that at an underlying level, performance has been sound in the current competitive, low interest rate environment.
It said that it made 1% cash earnings growth compared to the first quarter of FY20. However, cash earnings before tax and credit impairment charges were down 6%.
But it still isn’t plain sailing yet, according to the bank’s CEO, Ross McEwan, who said:
Improving economic and health outcomes in Australia and New Zealand are encouraging, as are the reductions we are seeing in deferral balances. However, there are still a number of uncertainties regarding further clarity. These include the impact on customers of ongoing health alerts and measures put in place to contain the spread of COVID-19, and the wind-down of deferral and jobkeeper programs. Supporting customers and keeping the bank safe through this period remain our priorities.
UBS said that its cash net profit was better than expectations due to the fact that impairment charges were lower. It was the lowest impairment charge since it started giving quarterly earnings updates over a decade ago. Its balance sheet was stronger than expected, with a common equity tier 1 (CET1) capital ratio of 11.7%. UBS has a NAB share price target of $27.
Credit Suisse is another broker that has a share price target of $27 for NAB shares. The broker has decreased its expectations of bad debts for NAB, meaning it’s now expecting higher profit from NAB.
Both brokers think that NAB shares are currently a buy.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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