The National Australia Bank Ltd (ASX: NAB) share price has increased by more than 35% in the last 12 months, as shown on the chart below. Shareholders and other investors may wonder whether the good streak can continue in FY25.
NAB has a different reporting schedule than many other ASX shares. Its full-year ends on 30 September, while June is the last month of the financial year for Australian individuals and many businesses.
There are still three and a half months left of the ASX bank share's FY24, so commentary about the outlook could apply to both the end of FY24 as well as FY25.
Worsening arrears
At the beginning of May 2024, NAB reported its FY24 first-half result, which showed cash earnings of $3.55 billion (down 12.8% year over year).
One of the negatives within the result was that the percentage of its loans that were overdue by at least 90 days or impaired is increasing – it was 0.66% in the FY23 first half, 0.75% in the FY23 second half and 0.79% in the first half of FY24. This represented "higher arrears across the Australian home lending and business lending portfolios, partially offset by lower impaired assets."
NAB said:
The Australian economy is proving resilient and most customers are faring well in the current more challenging environment. However, there remains continued uncertainty in the outlook including the impacts of global instability and the ability of customers to manage the full extent of higher interest rates and elevated cost of living pressures.
Strong competition
NAB reported in the HY24 result that revenue decreased by 3.7%, mainly reflecting "lower margins".
The net interest margin (NIM) decreased by 5 basis points (0.05%) to 1.72%, while the underlying NIM declined 10 basis points. This reflected "lending margin competitive pressures primarily relating to housing lending, along with higher term deposit costs and deposit mix impacts."
NAB said the benefits of a higher interest rate environment have been more than offset by competition while cost pressures remain elevated.
NAB shares its outlook
With the FY24 first-half result, the ASX bank share said the following:
With our new executive leadership team in place, we are considering how we evolve our strategic priorities. We start in a great place with strong, safe balance sheet settings and attractive growth options. While no major strategic pivots are needed, we are excited about opportunities to leverage the good work of the past several years to allow us to become even simpler and drive better outcomes for customers and colleagues while maintaining a disciplined approach. This will remain at the core of everything we do and underpin our ability to deliver sustainable growth and returns.
Forecasts
Analysts at broker UBS expect stronger results in FY25 than in FY24.
The broker currently forecasts that NAB could generate net profit after tax (NPAT) of $7 billion in FY24 and $7.15 billion in FY25. This would translate into earnings per share (EPS) of $2.21 in FY24 and $2.27 in FY25. While higher, this does not imply much growth in FY25.
UBS expects NAB shares to offer a fully franked dividend yield of around 5% over the next two financial years.
The broker currently has a sell on NAB shares because of a "fully valued" NAB share price. The price target is $30, implying a fall of 15% from where it is today.
