A fund manager has revealed how bullish he is on National Australia Bank Ltd (ASX: NAB) shares.
In an interview with The Motley Fool, SG Hiscock High Conviction Fund portfolio manager Hamish Tadgell revealed NAB is the fund's second-biggest position.
"That is reflective of the fact that we've come through the pandemic probably better than most would have expected 12 months ago," he said in this week's Ask A Fund Manager.
"Loss rates and provisions look like they'll be lower. The banks have taken significant provisions last year, and we think that some of those will be unwound over the course of the next 12 months."
Wilson Advisory agreed in its monthly report this week, titled Aussie Banks: Maintain Overweight Ahead of Results Season.
"We continue to see upside across the industry as the economy recovers, lending growth improves and strategic initiatives take hold," stated the report.
"Market conditions are likely to continue to remain favourable given the prospect of further upward moves in long bond yields through 2021 and acceleration in the domestic recovery cycle."
Tadgell reckoned there is a strong chance NAB could increase dividends this year.
"In an environment where rates are rising, albeit modestly, net interest margin [could move] to more neutral – maybe even slightly positive – for the banks," he said.
"So we continue to see upside in the banks, particularly on the dividend side."
Image source: SG Hiscock High Conviction Fund
Upgraded credit rating outlook
On Tuesday, Fitch Ratings revised its outlook for ANZ and NAB shares, upgrading each from 'negative' to 'stable'.
Even though the share prices for all 4 major banks have climbed significantly since September, Wilson remains overweight on NAB shares, as well as Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ).
"Today, we are overweight [on] the banks, with valuations sitting at around 1.4x [of book value],"
"While valuations have improved, share prices are still 15% below levels implied by looking at the long-term measures of price to book ratios (P/B), or on the same basis, 30% below 2015 levels before the multi-year bank derating process ended in mid-2020."
With the finance industry Royal Commission now firmly in the rear-vision mirror, regulatory risks have settled down for the big banks.
"The worst is behind the banks from a regulatory perspective. The reduction in potential risks is particularly important for our view on Westpac – the regulatory laggard of sorts."
At the time of writing on Thursday afternoon, the NAB share price is trading 0.41% higher at $26.83.
