Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

NAB cuts dividend more than expected, but a good long-term decision: Morningstar view

David Ellis, CPA  |  03 May 2019Text size  Decrease  Increase  |  
Email to Friend

National Australia Bank’s (ASX: NAB) first half fiscal 2019 cash earnings of $3 billion mildly disappointed, falling 5 per cent below our forecast.

The interim dividend was cut more than expected to 83 cents per share. The 16 per cent cut in dividend to a more sustainable payout is a good long-term initiative, providing greater flexibility to deal with potential future earnings volatility, regulatory changes and unexpected increases in customer remediation costs.

Despite the profit miss, the bank is coping reasonably well with a wide range of challenges, including the departure of the chief executive and announced retirement of the chairman. Business volume growth is good and bad debts remain around historical lows despite increasing modestly.

The process of restoring trust and building a culture of putting the customer first has started, but it is a long-term journey. Rebuilding culture, accountability and governance takes time. 

No changes to our $30 fair value estimate and at current prices, the stock is undervalued trading 15 per cent below our valuation.

The transformation project is on track and we expect a new chief executive to be appointed before December. The proposed sell-off/demerger of the MLC wealth business in 2020 will be an early test for the new Chairman, refreshed board of directors and new chief executive.

We expect a period of stability under acting chief executive Phil Chronican, who has broad-based experience across the Australian banking sector.

The interim cash profit from continuing operations includes an announced $325 million of customer remediation charges. Excluding the provision, the adjusted cash profit is a more respectable $3.3 billion.

Our fiscal 2019 cash earnings forecast of $6.2 billion is broadly unchanged, but we adjust for higher bad debts, lower net interest margins, and lower operating expenses.

Our total dividend forecast is reduced to $1.66 per share from $1.80 previously. We expected a 9 per cent cut to the interim dividend and were surprised with the 16 per cent reduction.

is a senior equity analyst in the equity research team at Morningstar.

Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend