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Should you invest in NAB’s $3.5 billion share purchase plan?

Posted: 28 April 2020 9:58 pm
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Stock chart.

Everything you need to know about NAB's latest share purchase plan and dividend update.

Update - Wednesday 27 May: NAB announced it has increased the share purchase (SPP) plan size from $500 million to $1.25 billion. This means almost all eligible shareholders (98%) that applied for the SPP should receive their allocation at $14.15 per share on June 2, 2020.

There has been plenty of news to dig into recently for National Australia Bank (NAB) shareholders – both good (potentially, at least) and not so good.

On the "not good" side, the major bank has confirmed that it's slashing the interim dividend by more than 60% from 83 cents per share to just 30 cents.

The news arrived as the bank released its half-year profit results ahead of schedule on Monday and declared a 50% fall in 1H19 earnings from the year before.

When is the dividend due?

On the plus side, many investors will be relieved to see any dividend at all.

There has been pressure on our major banks to cancel or cut shareholder payments after APRA's suggestion to do so on 7 April. It also comes after New Zealand's major banks, which are all subsidiaries of Australia's Big Four banks, cancelled their dividend payments early in the month.

If you want to be eligible for NAB's next dividend, you'll need to hold onto your shares until 1 May 2020 when the company goes "ex-dividend".

After that, you can sell your shares if you choose to and still get paid your dividends paid on 2 July 2020.

NAB's capital raise

The other big announcement this week was the launch of NAB's $3.5 billion capital raising and share price purchase plan (SPP).

A capital raise is where a company seeks to raise funds by selling shares at a discount price to institutional or public shareholders.

For regular shareholders, it means that $500 million of NAB stocks are being offered at a discount to its market price.

Its $3 billion share placement to institutional investors was successfully completed on Tuesday.

How to apply for NAB's SPP

To be eligible, you'll need to have been a registered NAB shareholder on Friday 24 April (the record date) and must be an Australian or New Zealand resident.

NAB has confirmed to Finder that all $500m of shares will be allocated to retail investors with more details coming on Monday May 4.

Shares are being offered at the price of $14.15 – around an 8% discount from Tuesday's closing price. If NAB's share price falls below this in the days leading up to the SPP closing date, the new price will be its 5-day average trading price plus a 2% discount.

Key dates:

  • SPP record date: 24 April 2020
  • SPP offer opens: 4 May 2020
  • SPP closing date: 22 May 2020
  • Issue date for SPP shares: 2 June 2020

There are a couple of limitations to note. First, there's a $30,000 limit per investor and second, any stocks purchased through the SPP will not be eligible for the next dividend payment in July.

NAB has said it will be sending application details to its shareholders – but they'll most likely be able to apply for the SPP directly through NAB, without needing to incur a brokerage fee.

Is NAB's SPP a buy?

Many of the major brokers seem to think so.

On Tuesday 28 April, Citi, Credit Suisse, Morgan Stanley and Ord Minnet offered a new "buy" recommendation for NAB, with target prices between 9% (Morgan Stanley) to 61% (Citi) above Tuesday's closing price.

However, according to market analyst Julia Lee of Burman Invest, it depends on what kind of recovery we can expect following coronavirus.

"If the impairments relating to COVID-19 are all that is to come, then it's a good price. If there’s many times that in the next 18 months then its price is not looking very good," said Lee.

For long-term investors, the picture is more positive. Lee says NAB's price is looking good so long as the company is on track for a full earning and dividend recovery by 2022.

As for a tip on when to invest, Lee says shareholders should always leave SPPs to the last minute so that they can gauge whether the price is attractive next to its market price.

"If so, then usually a good idea to participate. If not, cheaper to just buy the shares on market."

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involve substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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