The National Australia Bank Ltd (ASX: NAB) share price is edging higher on Friday morning.
At the time of writing, the banking giant’s shares are up almost 1% to $26.77.
This latest gain means the NAB share price is up almost 17% since the start of the year.
Is the NAB share price still good value?
A note out of the investment bank this morning reveals that its analysts have retained their conviction buy rating and lifted their price target to $29.97.
Based on the current NAB share price, this price target implies potential upside of 12% over the next 12 months (excluding dividends).
If you include the 4.7% fully franked yield the broker is forecasting, then this potential return stretches to almost 17%.
What did Goldman say?
Overall, Goldman was pleased with the bank’s half year result. And while its pre-provisioning operating profit (PPOP) fell slightly short, its cash earnings smashed the broker’s estimates.
It said: “NAB’s 1H21 cash earnings grew 95% on pcp to A$3,343mn, 10% above GSe, driven by lower-than-expected BDDs and operating expenses, partially offset by softer trading. This translated to a 1H21 PPOP miss versus GSe of 1.5%. The interim DPS of A60¢ reflected a payout ratio of 59% (DRP to be neutralised) and 1H21 CET1 ratio came in at 12.4% (pro forma 12.8%; internationally harmonised 17.0%).”
As a result of this solid performance, Goldman has upgraded its earnings estimates over the coming years.
It explained: “Our FY21/22/23E cash EPS changes by +10.6%/+4.8%/+4.9%, driven by: (i) lower BDDs in the near term, (ii) stronger volumes in both housing and business lending, (iii) well managed cost growth, partially offset by iv) lower NIMs, and v) weaker markets income. As a result of our EPS changes, our 12-month TP moves to A$29.97, from A$29.63.”
Why is Goldman bullish on the NAB share price?
There are four reasons why Goldman believes the NAB share price is the best option for investors in the sector.
“1. NAB’s cost management initiatives, which seem further progressed relative to peers, should drive productivity benefits sooner and free up investment spend to be more directed towards customer experience as opposed to infrastructure;
2. Given NAB’s position as the largest business bank, we believe it will be a big beneficiary of the continued economic recovery (management already speaking to improved volumes momentum across the franchise, in particular SME);
3. Versus peers, NAB, on a pro forma basis, is well capitalised and, given the significant buffer it has over its target CET1 range of 10.75-11.25%, looks well positioned for capital management;
4. Our TP offers c. 18% TSR potential [~17% now].”