NAB share price on watch after half-year earnings fall short of expectations

A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen.

A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen.

The National Australia Bank Ltd (ASX: NAB) share price will be one to watch closely today.

That’s because the banking giant has just released its eagerly anticipated half-year results.

Unfortunately, it appears as though the bank has fallen short of expectations, which could potentially put pressure on its shares.

NAB share price on watch following half-year results

  • Statutory net profit of $3,967 million
  • Cash earnings up 17% to $4,070 million
  • Fully franked interim dividend up 13.7% to 83 cents per share
  • Net interest margin (NIM) up 16 basis points to 1.77%

What happened during the first half?

For the six months ended 31 March, NAB reported a 19.3% increase in revenue or 16.6% excluding the impact of the Citi consumer business acquisition. Management advised that this reflects higher margins combined with stronger volumes and Markets & Treasury (M&T) income.

Speaking of margins, NAB reported a 16 basis points increase in its NIM to 1.77%. However, this is down slightly since the end of the first quarter. It is also short of Goldman Sachs’ estimate for a NIM of 1.83% for the half.

NAB advised that its NIM reflects higher earnings on deposits and capital as a result of the rising interest rate environment, partially offset by home lending competition and higher funding costs.

The bank’s expenses increased by 11.6% during the half. Though, excluding the impact of the Citi consumer business, expenses rose just 6.3%. Key drivers of this include salary increases, continued investment in technology capabilities, and compliance and remediation including activities. These impacts were partially offset by productivity benefits.

This ultimately led to NAB reporting a 17% increase in cash earnings to $4,070 million. While this is strong growth on paper, it falls short of the consensus estimate of $4,151 million.

Also falling a touch short was NAB’s fully franked interim dividend of 83 cents per share. Goldman Sachs had pencilled in an 84 cents per share dividend for the period.

Management commentary

NAB’s CEO, Ross McEwan, was pleased with the half. He said:

We have delivered a strong 1H23 financial performance with cash earnings up 17.0% compared with 1H22 and all businesses contributing to underlying profit growth of 25.5%. Our results have benefitted from the execution of our strategy over multiple years. This includes consistent investment in long term growth opportunities, while making choices for more targeted growth against the backdrop of a slowing economy and increasing competition.

The higher interest rate environment has also been an important near term driver of revenue this period. Staying safe and maintaining prudent balance sheet settings has been a key strategic focus which positions us well for the risks and volatility stemming from recent rapid monetary policy tightening.

Strong capital position

McEwan also revealed that NAB’s capital position remains strong. Which should be some comfort to investors following recent banking collapses. He adds:

Capital levels are above our targets, liquidity is strong, collective provision coverage remains well above pre COVID-19 levels and our FY23 term funding task is well advanced with $23 billion(1) raised in 1H23.

The CEO also commented on current trading conditions and how the cost of living crisis is impacting customers. He said:

The impact of higher living and interest costs on household spending and the broader economy is becoming more evident and we have a range of options available for customers needing support.

Finally, McEwan revealed that he is feeling positive about the company’s outlook. Especially with inflation showing signs of slowing. He concludes:

Early signs that inflation is moderating are encouraging and we remain optimistic about the outlook – our bank and most customers enter this period from a position of strength and we are well placed to continue managing our business for the long term. We remain focused on the disciplined execution of our strategy to drive sustainable growth in earnings and shareholder returns over time.

The NAB share price is down 12% over the last 12 months.

The post NAB share price on watch after half-year earnings fall short of expectations appeared first on The Motley Fool Australia.

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