NAB share price pushes higher on 'in line' $3.5b half-year profit

NAB delivered on expectations during the first half. And also gave shareholders a big reward.

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The National Australia Bank Ltd (ASX: NAB) share price is on the rise on Thursday.

At the time of writing, the banking giant's shares are up 1.5% to $34.18.

Why is the NAB share price rising?

Investors have been buying the big four bank's shares on Thursday in response to the release of its half-year results.

For the six months ended 31 March, NAB reported a 0.9% decline in net operating income to $10,138 million and a 12.8% decline in cash earnings to $3,548 million. This was largely in line with the consensus estimate of $3,553 million.

What happened during the half?

The main drag on the company's earnings in the first half was its Personal Banking segment. It reported a 29.6% decline in cash earnings to $553 million. This was driven by competitive pressures, which offset disciplined volume growth and benefits from the higher interest rate environment.

NAB's key Business and Private Banking segment performed a lot better. It posted a modest 2.4% decline in cash earnings to $1,673 million. Weaker revenue, lower margins, and higher expenses weighed on its largest segment.

The next largest segment is NAB's Corporate and Institutional Banking segment. It posted a 2.8% decline in cash earnings to $899 million.

And finally, the New Zealand Banking business recorded a 7.7% decline in cash earnings for the period. This reflects lower underlying profit as a result of increased expenses. This includes higher salary and technology-related costs and compliance obligations.

The good news for investors is that this didn't stop the NAB board from increasing its dividend by 1.2% to a fully franked 84 cents per share. This was ahead of the market's expectations.

But the returns won't stop there. NAB has announced an additional $1.5 billion on-market share buy-back.

Management commentary

NAB's CEO, Andrew Irvine, appeared pleased with the company's performance in a difficult environment. He said:

Our 1H24 financial performance has benefited from the disciplined execution of our strategy in a challenging environment. This has helped us manage the impacts of slowing economic growth and competitive pressures while also absorbing a higher effective tax rate. Compared with a very strong 1H23 result, cash earnings were 12.8% lower, but the decline was more modest versus 2H23, down 3.1%.

Commenting on the future, Irvine said:

Our strategy, in place since April 2020, has positioned us strongly as a simpler bank with a clear focus on driving better outcomes for colleagues and customers and delivering sustainable growth and returns for shareholders. We are proud of our progress but there is more to do. We need to do better for customers and become even simpler while continuing to remove complexity across our Bank.

Broker reaction

Goldman Sachs was pleased with the result, noting that it was in line with expectations. The broker commented:

NAB reported 1H24 cash earnings (company basis) from continued operations of A$3,548 mn, which was down -13% on pcp and +1% above GSe and broadly in line with Visible Alpha Consensus Data (VAe). PPOP was broadly in line with GSe but 1% lower than VAe (trading and other non-interest income), while the loan impairment charge was c.10% below GSe/VAe.

We also note that, at this stage, there will be no major pivot regarding long term strategy under the new CEO, Andrew Irvine, with key focus areas including greater customer centricity and ongoing simplification.

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 positions in and has recommended Goldman Sachs Group. 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 Scott Phillips.

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