NAB (ASX:NAB) share price falls despite bumper $6.56 billion cash profit

NAB shares are falling following the release of its full year results…

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The National Australia Bank Ltd (ASX: NAB) share price was pushing higher at the open on Tuesday until a wild swing shortly after wiped out those gains.

At the time of writing, the banking giant’s shares are down 3% to $28.24.

Why is the NAB share price falling?

Investors have been selling down the NAB share price today despite it reporting a significant jump in cash earnings in FY 2021. However, this cash profit appears to have fallen a touch short of the market’s expectations. More on that further below.

For the 12 months ended 30 September, NAB delivered a 76.8% increase in cash earnings to $6,558 million. Management revealed that this reflects notable items in the prior corresponding period that weren’t repeated in FY 2021 and a solid performance across much of the business.

In respect to the latter, NAB’s Personal Banking and New Zealand Banking segments were the highlights during the year. They delivered 14.4% and 18.7% increases in cash earnings, respectively. Both were driven by lower credit impairment charges and lending volume growth.

NAB’s biggest contributor to earnings is its Business & Private Banking segment. It delivered modest cash earnings growth of 0.3% to $2,480 million in FY 2021. This reflects lower credit impairment charges, which were partly offset by higher operating expenses.

One area of the business that took a bit of the shine off the result was its Corporate & Institutional Banking segment. Due to lower Markets income and higher credit impairment charges, it reported a 14.8% decline in cash earnings in FY 2021. This soft performance could be weighing on the NAB share price today.

Outlook

Management provided the market with some commentary on its expectations for FY 2022.

It advised that competitive pressures are expected to continue in FY 2022, impacting housing lending margins. It also advised that the impact to its net interest margin from the low interest rate environment in is expected to be broadly neutral in FY 2022, before turning positive in FY 2023.

Finally, its lower funding costs and deposit mix are expected to be a moderating tailwind.

What are brokers saying about the result?

Despite the bank’s result falling short of Goldman Sachs’ estimates, unlike some investors, the broker has seen enough to remain positive on the NAB share price.

It commented: “NAB reported 2H21 cash earnings (company basis) from continued operations of A$3,215mn, which was up 61.2% on pcp and slightly below (-0.7%) GSe, driven by lower-than-expected revenues (Markets and Treasury) and higher operating expenses, partially offset by outperformance on BDDs. As such 2H21 PPOP [pre-provisioning operating profit] missed GSe by -3.9%.”

“Given good balance sheet momentum, driving 2H21 hoh revenue (ex-Markets and Treasury) growth of 2%, coupled with management expectations of broadly flat FY22E costs (GSe +0.4% on the FY21A base) and a better than expected 2H21 performance on capital and asset quality (impaireds, past dues, watch list loans, provisions), we see today’s result as supportive of our Buy (on CL) recommendation, and NAB remains our preferred exposure to the Australian banks,” Goldman concluded.

Goldman currently has a conviction buy rating and $30.84 target on the NAB share price. Though, this recommendation could change in the coming days once its analysts have fully absorbed the result.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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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