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...

How Greek mythology can make you a better investor
07/12/2016  Don't be over confident or follow the herd, and like Odysseus, learn to have yourself "tied to the mast" when it comes to long-term investing.
Supermarket headwinds prompt fair value cut for majors
06/12/2016  Growing competitive pressures and a declining revenue outlook for Australia's two grocery giants now look to be part of a longer-term, structural shift.
What returns should you expect from markets?
01/12/2016  As market risks rise, investors must adjust their profit expectations--gone are the days of 8 per cent returns. But there are still growth opportunities out there if you know where to look.
Why healthcare stocks got a bump from Trump
28/11/2016  Australian healthcare and pharmaceutical companies continue to enjoy a purple patch, and for various reasons including the recent US election result, explains Morningstar's healthcare equities analyst Chris Kallos.
Equity and hybrid investors react as bond prices tumble
24/11/2016  The negative correlation between bonds and equities is reasserting itself following the US election of Donald Trump, according to John Likos, Morningstar's senior credit analyst.
2 global themes that are finding favour among ETF investors
15/11/2016  Australian retail investors are increasingly turning to ETFs for specific tactical exposures to global themes, particularly in the context of large-scale market events such as US election 2016.
Maintain discipline and stick to fundamentals when selecting stocks
14/11/2016  Steer clear of fads, maintain a disciplined approach and focus on company fundamentals in building and maintaining your investment portfolio, says Anton Tagliaferro, investment director, Investors Mutual
How Trump could impact economic growth
10/11/2016  Slowdowns in trade and immigration could hold back the US, and infrastructure spending could boost GDP, but it's too early to make any major changes to our economic forecast, says Morningstar's Bob Johnson.
President Trump: What should you do?
10/11/2016  Donald Trump has beaten Hillary Clinton to become the 45th US president. What should investors do?
Software companies worth watching amid tech deployment phase
08/11/2016  Kate Howitt, portfolio manager at Fidelity International discusses some of the core phases in technological disruption and identifies software companies among those currently presenting opportunities.
Kerr Neilson hot, cold and tepid on Europe, US and China
07/11/2016  Platinum co-founder and CEO Kerr Neilson explains his views on the major global markets and outlines where he sees opportunities--and where he doesn't.
Is Inghams a moat-worthy investment?
02/11/2016  Morningstar's Ravi Reddy discusses the upcoming float of poultry product producer Inghams, and whether it's in investors' interests to subscribe for shares in the IPO.
3 best ideas in healthcare
26/10/2016  Morningstar's Chris Kallos looks at some of the most compelling ideas in Australian healthcare, while also reaffirming the importance of the uncertainty rating and how it pertains to the sector.
Exercise caution and let some cash build
24/10/2016  Morningstar's Peter Warnes provides a near-term outlook for equities markets, while also sharing his thoughts on the upcoming Ingham's IPO.
Bogle forecasts low stock and bond market returns
21/10/2016  Warning of "much lower market returns" ahead, Vanguard founder Jack Bogle urges investors to seek low-cost investment products. From Morningstar US.
Finding the right flavour ETF amid expanding ETP menu
13/10/2016  From a relatively vanilla selection of exchange-traded funds (ETFs) on offer in the early 2000s, Australian investors can now choose from a wide range of exchange-traded products to suit various tastes.
Bright outlook for Aussie banks despite parliamentary committee and looming Basel IV regulations
12/10/2016  Australia’s ‘big four’ banks’ share prices have held up after their CEOs recently fronted a parliamentary committee, and have already absorbed the potential impact of more stringent capital requirements
Dividend, cashflow challenges hit investors but yield opportunities remain
06/10/2016  Technology, healthcare and telecoms hold opportunities for global equity investors even as utilities and energy stocks disappoint, says Jane Shoemake, director for global equity, Henderson
No place for set-and-forget asset allocation
04/10/2016  A 2016 company reporting season overview and explanation of why dynamic asset allocation is so important, from Dr Shane Oliver, chief economist and director of investment strategy, AMP Capital.
The search for bond yields
27/09/2016  Morningstar's Hybrid Handbook: Navigating the Australian Hybrid Market pulls back the curtain on corporate and bank hybrids, as John Likos, Morningstar's senior credit analyst, explains.