Is it possible that the National Australia Bank Ltd (ASX: NAB) share price could reach $30 if the good share market returns continue?
The bank has been on a rollercoaster over the past two and a half years. In November 2017 the NAB share price was above $30 but just over a year ago the share price was under $23.
It has been a tough period for NAB with the royal commission into financial services. Of course, NAB deserved the scrutiny because of what was uncovered – that's why it's paying so much back to customers as remediation.
There's also a worry that the ASIC fine regarding fees for no service could be quite large. Plus, there's some uncertainty hanging over NAB because of AUSTRAC. NAB warned that it may be involved in a breach or alleged breach of laws governing bribery, corruption and financial crime.
Commonwealth Bank of Australia (ASX: CBA) has recovered after its huge $700 million AUSTRAC penalty, I'm sure NAB can recover eventually too.
But can it reach a $30 share price this year?
A 20% rise sounds like a lot but it's definitely possible.
In FY19 NAB reported that its cash profit (excluding significant items) rose by 0.8% to $6.55 billion, but actual cash earnings fell by 10.6% to $5.1 billion. Statutory earnings per share (EPS) from continuing operations dropped by 16% from 207.2 cents to 173.9 cents.
In FY20 NAB is predicted to generate EPS of 201.8 cents. It would only take NAB to be trading at just under 15x FY20's estimated earnings for it to reach a share price of $30.
When you look at some of the technology valuations it doesn't seem out of the question that NAB could reach a p/e of 15. It helps NAB that Australia's housing market is now returning to growth, it should mean higher total credit growth.
NAB isn't a bad business. It's now got an impressive duo in the top positions of CEO and Chairman. But, I think there are shares out there that could make bigger returns.
