What’s behind the bounce in the NAB share price?

Posted: 13 August 2021 3:08 pm

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.”

Strong outlook

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.

Considering buying NAB shares?

If you are keen to buy NAB shares, you should consider investing through an online share trading platform.

Not all platforms offer the same list of stocks. Some trading platforms offer US stocks only, so make sure to select a platform that offers ASX-listed stocks.

Choose from the dozens available for Australian investors. Compare the features and fees from the plethora of trading platforms available for Australian investors.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. 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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