The National Australia Bank Ltd (ASX: NAB) share price has not had a great year if we're looking at the Australian tax year dates for the 2023 financial year. Could FY24 be a better time?
Higher interest rates have sent the ASX bank share higher as markets factored in stronger profit potential.
NAB did demonstrate stronger profit in the last reported numbers we've seen. In the first half of FY23, it made around $4 billion of cash earnings, up 17% year over year. Personal banking cash earnings were $785 million (down 0.4%), while the other three divisions saw profit growth of at least 16%.
What could happen in FY24 for NAB shares?
Firstly, it seems quite likely that the interest rate is going to keep up. There are several forecasts out there that suggest the RBA rate will peak between 4.35% to 4.85%.
How high the RBA goes could depend on how long it takes inflation to come down, what companies do with their prices and what happens to wage increases.
Higher interest rates may mean that NAB can earn stronger earnings on deposits that don't pay interest, such as transaction accounts.
However, rising interest rates also increase the risk of bigger arrears and potentially bad debts.
Competition may have reduced a little recently, but it's not as though lots of ASX bank shares have gone out of business in the last few weeks. I'm sure lots of lenders still want to improve their market share.
It's hard to say what the FY24 net interest margin (NIM) will do, but with the potential for higher arrears, lending profits may not be as strong in FY24.
FY24 earnings projection
The current projections on Commsec suggest that NAB shares will generate earnings per share (EPS) of $2.45, which would be solid growth compared to FY23.
However, NAB's EPS is expected to fall in FY24 by 9% to $2.23, following some of the issues that I've talked about.
If it did generate $2.23 of EPS, that would put the NAB share price at under 12 times FY24's estimated earnings.
That's a relatively low price/earnings (P/E) ratio, largely due to the fall of the NAB share price of around 20% since February 2023.
What about the dividend in FY24?
Commsec numbers suggest that NAB shares might pay an annual dividend per share of $1.66 over the next 12 months.
At the current NAB share price, this translates into a grossed-up dividend yield of 9.1%.
Foolish takeaway
Over FY24, I think there's a good chance that the NAB share price will manage a small gain, particularly if house prices keep rising (or at least stabilise) because it would protect against the bank seeing negative equity with a house sale process.
NAB is still my preferred domestic ASX bank share because of the quality management and focus on improving the bank.
