Shaw and Partners had the pleasure of hosting Andrew Thorburn, Group CEO of National Australia Bank, in the Melbourne office this morning. Andrew presented the highlights of the full year results to our Retail and Institutional Brokers. The presentation was hosted by our Senior Analyst, David Spotswood.
Presentation highlights:
Results: Last week NAB reported FY17 cash profit of $6.4bn and second half dividend of 99cps.
Key Focus: The current management have done a good job executing to date and are doing the right thing having a go at improving the business for the future. NAB has announced it will have cost growth of 5%-8% in FY18 as it increases investment spend to position itself for the long term as a leaner, more efficient and better organisation. There will also be a one off restructuring charge $500m-$800m in FY18, but the dividend will be maintained. We now forecast core growth of 1%, 5% and 5% for FY18-FY20, in line with management comments that absolute dollar value of core earnings will be up in FY18.
Happy with core, now about setting the business up for the future - Set business for potential of a down turn, new entrants, and potential for a period of low growth. NAB are looking to become a more efficient and simpler organisation, via reducing complexity, number of systems and number of products. An additional $1.5bn is being invested over the next three years to drive future growth.
NAB is targeting growth via a number of key areas: being the best business bank (current system growth 2%, NAB 3.2%); infrastructure (global is a mega trend); Growth Corridors of Western Sydney & Western Melbourne; Ubank; Private bankers
KPIs: Positive NPS (net promoter score); cost to income 35%; number one ROE, top quartile employee engagement. About having right mind set internally.
Capital and Dividends – will hold dividend in FY18 at $1.98. NAB has a 1.5% discount on the DRP which is expected to add 15bps-20bps to CET1. We have NAB reaching APRA’s 10.5% CET1 target by FY20.
Bad debts well behaved: Environment continues to remain favourable. We have bad debts lifting to 17bps of gross loans in FY18 up from 14bps this year. NAB have taken topped up collective provision overlay by $160m in response to weak retail trading conditions. We expect bad debts to remain low while interest rates are at all-time lows.
Recommendation: Shaw and Partners has a hold on the stock. We expect NAB to be performing in line with the market. Investors looking for a yield can own the stock.
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