National Australia Bank's (NAB) plans to underwrite the interim DRP will leave the balance sheet in a slightly stronger position from Australian stockmarket analysts from Citi.

National Australia Bank (NAB): Is it time to NAB a Dividend?

Australian investors digested the performance results from National Australia Bank (NAB) and St George (SGB) last week and managed to dissipate some of the ambiguity around impacts of the credit crunch. In addition to this, the week has kicked off with news that Westpac (WBC) is in talks with SGB about a possible takeover. Subsequently the Australian financial sector has rallied this morning with NAB the standout up 5.52%. Furthermore with the stock going ex-div on the 30 May there may opportunities for a dividend yield play…

Friday’s Result

On Friday NAB released 1H08 NPAT of $2,089m which was 1.8% below Macquarie Research Equities (MRE) forecast. NAB’s result did, however, indicate their ability to manage easing asset growth. This was supported, although, by favourable currency movements, volatility-linked earnings and inter-group transfers.

MRE also highlighted that impairment provisions are likely to improve over the next 12 -18 months. This is due to the majority of large assert quality risks being alleviated. On another positive note, NAB’s plans to underwrite the interim DRP will leave the balance sheet in a slightly stronger position.

Recommendation

MRE have lowered their forecast on EPS estimates by 1.5% for FY08 and 0.2% for FY09. They do, however, stipulate that investors can take a degree of comfort in the fact that balance sheet health is improving. MRE retain their neutral recommendation on the stock and feel that clients should perhaps look beyond the “earnings noise”. They maintain a $34.80 12-month price target.

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