The National Australia Bank Ltd (ASX: NAB) share price has been a positive performer on Tuesday.
In afternoon trade, the banking giant's shares are up 1.5% to $31.20.
Why is the NAB share price rising?
There appear to have been a couple of catalysts for the rise in the NAB share price today.
One is the release of a strong update from US bank JP Morgan overnight on Wall Street. The other is a bullish broker note out of Goldman Sachs this morning.
In respect to the latter, the broker has retained its conviction buy rating and $34.17 price target on the bank's shares.
Based on the current NAB share price, this implies potential upside of 9.5% for investors over the next 12 months. This increases to approximately 14.5% if you include the $1.51 per share fully franked dividend the broker is forecasting in FY 2022.
What did the broker say?
After looking through recent updates in the sector, Goldman believes that bank margins may have found a bottom now. However, it suspects that volumes will start to slow, which means that cost cutting will become particularly important.
We think NIMs troughed in 1H21 and should start rising in 2H22E, supported by higher rates and the mix impact of less lower margin fixed rate mortgages. On volumes, we expect both system housing and business loan growth to experience a slowdown but overall remain elevated relative to pre-covid levels. We continue to see costs as a key determinant of relative sector performance particularly in light of inflationary pressures and higher investment spend.
In light of this, the broker believes NAB shares are the ones to buy in the sector right now.
We reiterate our Buy (on CL) on NAB and it remains our preferred sector exposure given: i) NAB's balance sheet mix provides the best exposure to the domestic system growth we foresee over the next 12-18 months, which should favour commercial over mortgage lending, ii) NAB's franchise is performing strongly, growing at or above system growth in most segments, iii) NAB's disclosure on NIM leverage to higher rates is even more optimistic than we previously estimated.
