What’s behind the bounce in the NAB share price?
Shares in the Big Four bank have risen nearly 60% in the last 12 months.
Shares in National Australia Bank (ASX: NAB) are among the better-performing bank stocks on the ASX on Friday. The stock came within touching distance of its 52-week high of $27.84 and at the time of writing, was still up 1.2% at $27.60 each.
What is leading the NAB stock price higher?
Sentiment in the NAB stock is higher after the major bank on Thursday announced a 10% jump in its June quarter cash profit to $1.7 billion, largely thanks to a $112 million write-back of provisions due to improved asset quality in housing and business lending.
The ratio of collective provisions to credit-risk-weighted assets fell 13 basis points from the March quarter to 1.37%, largely after the lender sold $1.5 billion worth of aviation loans.
Significantly improved credit impairment costs were a big driver of the quarterly profit, helped by higher property prices and continuing low specific provisions.
The improving trend was underlined by the 2% increase in home lending and 4.3% rise in small and medium-sized enterprise business lending, both outpacing the average of the wider banking system.
“These outcomes are a result of the decisions and investments we are making, which are having a positive impact on customers and colleagues,” CEO Ross McEwan said in a statement.
“We have a clear focus on where and how we will continue to grow.”
Analysts largely agree with that assessment. According to Refinitiv data, 7 out of 13 brokerages rate the NAB stock as a "buy" or higher, and the consensus price target for the stock is $28 a share.
That suggests there is still some upside left in the share despite a 52% surge in market value over the past 12 months.
Analysts at Citi said Australia's third-largest lender "appears well-placed to weather industry revenue pressures" if it is able to keep costs in control and maintain cost discipline. The broker holds a "neutral" rating on the stock with a target price of $26.75.
Morningstar analysts also said the quarterly result was a little better than expected, mainly because the loan impairment benefit has extended from the first half of the year.
Meanwhile, traders are still holding hope for more capital return after NAB said its common equity tier 1 (CET1) ratio was currently at 12.6%, well above the regulator's target 10.75–11.25% range. The banks said its $1.2 billion acquisition of Citigroup’s consumer business, announced on Monday, would cut the CET1 by 85 basis points, with a further 60 basis point impact from the recently announced $2.5 billion share buyback.
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