Is the NAB (ASX:NAB) share price great value?

The National Australia Bank Ltd (ASX:NAB) share price could be great value for investors according to one leading broker. Here’s why…

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The National Australia Bank Ltd (ASX: NAB) share price has been a solid performer on Monday.

In afternoon trade, the banking giant’s shares are up 1% to $27.06.

This latest gain means the NAB share price is now up 18% since the start of the year.

Can the NAB share price go even higher?

One leading broker that believes the NAB share price can still go higher from here is Morgans.

According to a recent note, the broker has retained its add rating and $29.00 price target on the bank’s shares.

Based on the current NAB share price, this implies potential upside of 7.2% excluding dividends.

And if you include the $1.29 per share fully franked dividend the broker is expecting this year, this potential return stretches to approximately 12%.

Why is Morgans positive on NAB?

The broker has named a few reasons why it is bullish on the NAB share price.

One of those is that it still believes its provisioning looks conservative, even after its net release.

It commented: “The 1H21 credit impairment benefit of $128m is less than our forecast of $517m. NAB’s collective provision (CP) coverage of credit risk weighted assets (CRWA) was 155bps at Dec-2020 and we were expecting this to be reduced to 140bps at Mar-2020. However, NAB has only reduced this coverage to 150bps at Mar-2020, which we believe to be a very conservative coverage ratio given the improvement in the economic outlook.”

“While there was an ‘underlying’ net provision release of $114m and a release of Economic Adjustment (EA) of $235m, NAB topped up its forward-looking adjustments (FLAs) by $221m primarily for aviation and high-risk mortgage exposures. We now forecast NAB’s CP coverage to be reduced to 140bps in 2H21F,” it explained.

Another reason to be positive is the increasing potential for capital management.

Morgans notes that NAB’s CET1 ratio of 12.4% is better than it was expecting. It also points out that it compares very favourably with APRA’s ‘unquestionably strong’ benchmark of 10.5%.

In light of this and management’s target CET1 range of 10.75% to 11.25%, it believes NAB will be looking to conduct capital management in the form of share buybacks.

The broker is forecasting surplus CET1 capital of $9.1 billion at the end of FY 2022, equating to $2.75 per share.

All in all, it appears to believe that this and the improving outlook for the sector makes the NAB share price good value at the current level.

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Motley Fool contributor James Mickleboro 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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