National Australia Bank Limited (NAB) Technical Update

MRE have a neutral recommendation with a $35.10 12-month price target.

National Australia Bank Limited (NAB) – Not All Bad!

NAB reported first-half 2008 earnings of $2.089m which was 1.8% below the forecast of Macquarie Research (MRE) with $1.28 Earnings Per Share vs MRE forecast of $1.31. The dividend of $0.97 will be underwritten with a 2.5% discount. MRE believe the operating performance of NAB was good and the quality of the underlying asset trend is sound.

National Australia Bank (NAB) shares have lost 18% of their value in 2008.

MRE have a neutral recommendation with a $35.10 12-month price target.

Impact:

1. Stronger margins were offset by weaker income from NAB capital which resulted in operating income of $7.639m, however $190m hedging costs were offset in net interest income.
2. Costs came in less than forecast as group cost-to-income fell to 47.99% compared to the MRE forecast of 49.6%.
3. Impairment expense of $940m was higher than forecast.
4. The $0.97 dividend will be underwritten by a dividend reinvestment plan. The dividend was higher than the $0.95 MRE estimate.

Action:

1. The operating result was in-line with expectations with another excellent cost performance.
2. The outlook for provisions shows decent trends in Australia and the United Kingdom - NAB owns the Yorkshire and Clydesdale banks in England.
3. MRE believe risks have been priced in to current valuations.

MRE maintain their neutral recommendation.