NAB full-year earnings snapshot

Nicholas Grove  |  31/10/2012Text size  Decrease  Increase  |  

Nicholas Grove: National Australia Bank has announced its earnings for the 2012 financial year, and here to give investors his initial impressions of the bank's results, I'm joined by Morningstar's head of Australian banking research, David Ellis. David, thanks very much for joining us.

David Ellis: Pleasure, Nick.

Grove: First of all, David, were NAB's earnings and dividend in line with, above or below what you are expecting?

Ellis: Well, they were in line, simply because NAB had preannounced a couple of key earnings drivers about 10 days ago, particularly focused around bad debts. They had also preannounced the final dividend, so there was no surprises there. They had indicated that the cash profit would be similar to 2011. So there were no surprises with that. However, the makeup of the result was a little bit surprising and a little bit disappointing.

Grove: So, David, what were the key drivers that made up these results?

Ellis: Well, the key drivers that we identified, that we were looking at, were net interest margins and they declined sharply in first half 2012 and continued that decline into second half 2012, which was a little disappointing. Bad debts, even though there has been lot of focus on that with the preannouncement a couple of weeks ago, that was still little bit worse than I was expecting. The majority of the pre-disclosure related to the United Kingdom and to National Australia Bank's banking operations in the UK, but there was bad debt weakness here in Australia.

Some of the positives, however, some of the good things in the result were operating costs. So, costs are coming down actually, so they are not growing. Costs came down in the year and in the second half, so that helped to offset some of the weakness in the revenue growth and the weakness in the bad debts.

Our non-interest income recovered strongly from the previous year. That was good, but that's a volatile number and that changes from period to period. So while it was up in this year, it may be down next year, so it's not necessarily a good quality indicator of future earnings. So, overall, there was reasonable revenue growth - nothing fantastic - but reasonable. Credit growth was okay, there was some weakness in the Australian business sector, but the major weakness for the National Australia Bank was in the UK operations and they have been a festering sore now for quite a while and unfortunately will continue to be so for all for several years.

Grove: Finally, David, was there anything about the result that surprised you or that will alter your outlook for the bank?

Ellis: Yeah, and the margins were bit softer than I was expecting. So we've had to pull back some of our forecast on net interest margins. The dividend was also was preannounced. It was still a reasonably strong result, the dividend increase for the year. That's important because our thesis, our long-held thesis, has been that the four major banks are going to continue to deliver sustainable growing dividends and that's very important. And while the profit number was a bit softer, the fact that the dividend was around 4 per cent higher than 2011, and indications that the dividend will continue to grow, reinforces our thesis and our positive view on the major banks.

Grove: David, thank you very much for your time.

Ellis: It's a pleasure, Nick.

Video Archive...

Exclusive: An interview with Westpac CEO, Brian Hartzer - Part 3
20/07/2017  Insights on Australia's housing market, China's effect on domestic banks, and cyber-security readiness, in the final instalment of Brian Hartzer's interview with Morningstar's David Ellis.
Telstra won't be blown away by headwinds
17/07/2017  While it faces what Morningstar equity analyst Brian Han describes as a whirlwind of negatives, he suggests investors shouldn’t hang up on Telstra.
Exclusive: An interview with Westpac CEO, Brian Hartzer - Part 2
13/07/2017  Westpac CEO Brian Hartzer joins Morningstar banking analyst David Ellis to discuss digital disruption, regulatory change and Australian banks' social license.
The home-truths of investing
12/07/2017  Look for companies that sit outside the cycle; heed the lessons of history; and remember the power of compounding, says Bennelong's Neale Goldston-Morris.
Exclusive: An interview with Westpac CEO, Brian Hartzer - Part 1
06/07/2017  Brian Hartzer, CEO, Westpac joins Morningstar senior analyst David Ellis to discuss his role leading Australia's oldest bank, how Westpac can continue to grow value, and its commitment to sustainability.
Self-managed super is not Do-it-yourself
03/07/2017  There are a few common pitfalls in running a self-managed super fund that mean trustees shouldn't go it alone entirely, says BT Financial Group's head of financial literacy, Bryan Ashenden.
Investing to protect on the downside
30/06/2017  There are investment strategies you can adopt to mitigate volatility-linked fear and uncertainty in markets, explains Roy Maslen, chief investment officer – Australian equities, AllianceBernstein.
Don’t overdo benchmark consideration
28/06/2017  Being benchmark agnostic is the most effective approach to fixed income investing, according to Anujeet Sareen, portfolio manager, Brandywine Global.
Factor-based investing using ETFs
26/06/2017  Investors should consider style-exposures--such as value, defensive or yield-- they would like in their portfolios, explains Jonathan Shead, head of portfolio strategists – Asia Pacific, State Street Global Advisors
Volatility plays to active manager strengths
--  The climate of political volatility in the US holds important implications for investors and the funds they invest in, particularly around Donald Trump's ability to pass legislation through Congress, says Pimco's Libby Cantrill.
Is the FTSE 100 Facing Another Market Crash?
16/06/2017  Ten years on from the pre-crisis FTSE 100 high, Morningstar UK's Emma Wall examines how UK stocks have fared
How to guard against retirement threats
16/06/2017  As retirement approaches, even the best-laid plans can go awry, as Tim Steffen tells Christine Benz, Morningstar US.
PIMCO Global Credit Fund
07/06/2017  The PIMCO Global Credit strategy receives a Morningstar Analyst Rating of Silver due to its sizeable and highly capable credit research team.
PIMCO Income Fund
07/06/2017  Morningstar's Tim Wong looks at the strengths and competitive advantages of this Silver-rated strategy.
3 pockets of opportunity in fixed income
07/06/2017  The head of PIMCO Australia portfolio management explains his views on active management in fixed income and outlines where he sees most value in this space.
Trump administration biggest macro threat for investors
05/06/2017  Even as European political volatility subsides, the US Government remains a considerable threat to financial markets, says Colleen Barbeau, director of equity portfolio management, Franklin Templeton.
Antipodes Global Fund: Class P
01/06/2017  Antipodes constructs this portfolio based on three major objectives--capital preservation, inclusion of attractively priced businesses, and investment resilience.
Investors Mutual WS Future Leaders Fund
01/06/2017  Investors Mutual Future Leaders is a capable strategy focused on investing in Australian companies outside the top 50.
Why the time is right to invest in India
25/05/2017  Indian stocks rallied after the appointment of Narendra Modi as Prime Minister--but then subsequently fell. UK-based investment manager Jonathan Schiessl says now is the time to buy.
When should you pay active fund fees?
23/05/2017  When is it worth paying higher fund fees for active fund management? The single most important factor effecting a fund's relative performance is its price.