Wednesday 14th July 2010
|Text too small?|
National Australia Bank, which owns Bank of New Zealand, is facing pressure on interest margins from a combination of higher wholesale funding costs and tough competition in the retail term deposit sector which is pushing up the average cost of funds, says David Ellis, an analyst at Aegis Equities Research.
"Compounding the higher cost of funding is NAB's price-led strategy to grow business volumes and market share in consumer banking," Ellis says. "Market share in residential home loans has improved but the strategy comes at a cost of lower profitability."
He has pulled back his earnings-per-share forecast for the year ending September by 3.1% and his 2011 forecast by 6.8%.
"To reflect a more cautious outlook, we decrease hour forecast dividend payout ratio to 65% for 2011, reducing the expected dividend to A$1.68 (NZ$2.07) per share from $1.73. Nevertheless, Ellis has raised his longer-term growth assumptions and raised his valuation to A$30.80 a sahre from A$28.20 previously.
"NAB is well-positioned to leverage earnings as economic conditions continue to improve in Australia and eventually recover in New Zealand and the UK," he says. The bank has a strong franchise in Australia and New Zealand but remains sub-scale in Britain, he says.
DISCLAIMER: To the extent that any of the content above constitutes advice, it is general advice that has been prepared without reference to investor’s objectives, financial situation or needs. Before acting on any advice, investors should consider the appropriateness of the advice and IRG recommend that investors should obtain appropriate financial, legal and taxation advice before making any financial investment decision. The report is based on information compiled from public information and private research. IRG have completed the report on a best endeavours basis and do not accept any liability of loss or damage. IRG suggest that clients use this as part of a decision making process and check key data before making any investment decisions.
Employees may have an interest in the securities discussed in this report.
No comments yet