National Australia Bank Ltd (ASX: NAB) reported its FY21 result to investors this week. Analysts have had a look – do they rate the NAB share price as a buy?
Firstly, let's see how the result stacked up.
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NAB FY21 result
The big four ASX bank said that it generated $6.36 billion of statutory net profit.
Meanwhile, the cash earnings came to $6.56 billion – that was an increase of 76.8% year on year. Excluding FY20's large notable items, NAB's cash earnings increased by 38.6%.
NAB explained that its total revenue declined by 2.2%. Higher volumes were more than offset by lower markets and treasury income which was challenged by more limited trading opportunities.
The net interest margin (NIM) declined by 6 basis points to 1.71%. However, excluding the 6% reduction from markets and treasury (which includes the impact of holding higher liquid assets), NIM was flat which reflected lower funding and deposit costs and home repricing. But this was partially offset by the impact of the low interest rate environment combined with "home lending competitive pressures" and a shift towards more fixed-rate lending.
Expenses officially fell 13.2%. Excluding large notable items in FY20, expenses actually rose 1.8% with important drivers such as performance-based compensation provisions, as well as hiring more people to support growth, partly offset by productivity benefits and lower restructuring-related costs.
During the worst of the COVID-19 crash last year, the NAB share price fell heavily and there was a worry of bad debts. In this result, NAB's credit impairment charge was a write-back of $217 million compared to an FY20 charge of $2.76 billion.
NAB said its ratio of 90+ days past due and gross impaired assets to gross loans and acceptances reduced by 9 basis points to 0.94%.
The big four bank said:
The economic outlook is improving with restrictions easing. But uncertainties exist including the impact of tapering support and the extent and breadth of the rebound. To reflect this, collective provisions remain prudent at 1.35% of credit risk weighted assets.
Balance sheet and dividend
NAB's balance sheet continues to strengthen. Its overall common equity tier 1 (CET1) ratio was 13% at the end of FY21, up 153 basis points over the year. That includes 29 basis points from the net proceeds of the sale of MLC Wealth, less the acquisition of 86 400.
However, it's expected that the net pro forma CET1 ratio will be reduced by around 75 basis points by the acquisition of Citigroup's Australian consumer basis as well as the remaining $2 billion share buyback, less proceeds from its BNZ Life sale.
NAB decided to more than double its annual dividend, from $0.60 per share in FY20 to $1.27 per share in FY21. This represented a cash dividend payout ratio of 63.7% of continuing operations.
Is the NAB share price a buy?
Opinions are somewhat mixed on the bank after the result.
For example, Citi is 'neutral' on NAB shares, with a price target of $29.50. It thinks it is one of the better big four banks after this result, but there remains a lot of competition in the property loan space. Citi is expecting slight underlying growth in FY22. The broker thinks NAB will pay an FY22 annual dividend per share of $1.45.
However, analysts at Macquarie Group Ltd (ASX: MQG) think the NAB share price is a buy, with a price target of $30.50. Macquarie also believes NAB is doing better than its big competitors. But, despite the buy rating, Macquarie actually thinks NAB will generate less profit and pay a small dividend in FY22 compared to Citi's estimates. Macquarie has projected an annual dividend per share of $1.35 from NAB in the current financial year.
