NAB shares drop after bank misses profit expectations
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More news: NAB shares fell 1.2% in early trading on Monday after the bank missed profit consensus figures, even as it managed to grow business lending.
The bank’s share price fell to around $39.36 in the first 20 minutes of the session following its first half result.
It comes after the bank reported a $2.75 billion statutory net profit, just below the $2.85 billion market consensus, according to Visible Alpha.
Jarden analyst Matt Wilson noted the result would do little to justify NAB’s valuation, which like that of its peers, is well above historic average.
“Underlying trends are ok and no change to priorities (proprietary home loans, deposits, business banking) but we believe they struggle to justify a 19x price-to-equity ratio (history says 12x),” Wilson wrote in a note to clients.
He added that NAB’s decision to reset its software capitalisation balance, for the third time in seven years, and capital modelling “raises some questions”.
Speaking to analysts on Monday morning, chief executive Andrew Irvine said NAB’s result was underpinned by the strength of its business banking division, the largest in Australia.
“[Lending] across both business and private banking, and corporate and institutional banking increased by 11.5% in the 12 months to March to $306 billion. This is our strongest annual growth in three years and was supported by above system lending growth in Australian business lending,” he said.
“In recent halves, despite strong competitive intensity, we have consistently grown business lending at above system rates while maintaining a stable divisional margin. A holistic approach to retaining high-performing bankers has helped keep turnover rates low.“
NAB’s $2.64 billion cash profit crimped by software changes
The news: National Australia Bank has posted a $2.64 billion cash profit, up 2.3% from the prior half, even as changes to software accounting muddy the result.
The numbers: NAB’s results were largely skewed by large and notable items (LNI), chiefly a software capitalisation change. Excluding this, cash earnings came in at $3.59 billion, or $949 million higher.
Despite profit coming in below market expectations when accounting for the software charge, NAB said underlying profit grew strongly at 6.4%.
Across the bank, lending increased by 2.9% and deposits grew by 2.3%. Revenue rose 3.1%, helped by strength in the markets and treasury division. Expenses grew 26.2%, but excluding LNI expenses decreased 0.5%.
NAB’s business bank took market share in the half with business lending up 5.6% as it tries to see off competitive threats from rivals, particularly the Commonwealth Bank. The business and private bank grew deposits by 4.7%, including 8% growth in transaction accounts.
NAB said it achieved another key priority in increasing home lending via proprietary channels from 41.4% in the previous half to 47.7% in the latest half.
Cash return on equity was 8.5%, or 11.6%, excluding LNI. The bank’s net interest margin (NIM) rose 3 basis points to 1.81%.
NAB announced an interim dividend of 85 cents in line with the first half of last financial year.
Non performing exposures of gross assets decreased 3 basis points to 1.52%.
What they said: Chief executive Andrew Irvine said, despite increasing provisions, the bank’s asset quality had improved over the half.
“Geopolitical tensions have created a more volatile macro economic environment. We enter this period in good shape and actions taken in 1H26 to bolster our balance sheet will allow us to continue to grow and support customers,” Irvine said.
In attached commentary, NAB added the outlook was increasingly clouded.
“While underlying asset quality outcomes have generally improved in 1H26, the outlook is more uncertain as a result of the Middle East conflict which presents a key source of downside risk,” the bank said.
The context: NAB shares fell last month after the bank flagged a $705 million hit in credit impairment charges. It is the latest bank to report its first half result, following ANZ on Friday, and before Westpac on Tuesday and Macquarie on Friday.
The source: NAB
