What to expect from the NAB (ASX:NAB) half year result

Here's what to be watching out for when National Australia Bank Ltd (ASX:NAB) releases its half year results next week…

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NAB CEO Ross McEwan

NAB CEO Ross McEwan. Photo by Jesse Marlow

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Over the next couple of weeks, the big four banks will be handing in their latest report cards. Ahead of their releases, I thought I would take a look to see what the market is expecting from them.

On this occasion, I'm going to look at the National Australia Bank Ltd (ASX: NAB) half year result.

What is expected from NAB in the first half?

NAB is scheduled to release its half year results on Thursday 6 May.

According to a note out of Goldman Sachs, it is the broker's top pick among the big four banks. Goldman currently has a conviction buy rating and $29.63 price target on its shares. As you might expect, this means it has high expectations for this result and the second half.

The note reveals that Goldman expects the banking giant to report cash earnings of $3,031 million. This will be up 77% on the prior corresponding period.

On the bottom line, the broker is forecasting earnings per share growth of 43% to 85.4 cents.

This is expected to lead to the NAB board declaring a 55 cents per share fully franked interim dividend.

What else should you look out for?

One thing the broker is looking out for is a potential reversal on its bad and doubtful debts (BDDs). It notes that two of its rivals have already made positive adjustments, but NAB has yet to do so.

It commented: "NAB, unlike peers ANZ and WBC which both reported bad debt benefits, saw a 1Q21 bad debt charge of A$15 mn […] We currently forecast a 1H21E BDDs/TL to 11bp from 56bp in the previous half and will be interested in hearing management commentary around whether there is scope for recoveries."

Another thing to watch is its expenses. Goldman is forecasting a reduction in expenses during the half.

It explained: "NAB's 1Q21 expenses fell 1% on the 2H20 quarterly average, reflecting benefits from productivity and lower restructuring costs, partly offset by provisions for performance-based compensation […] We are forecasting 1H21E expense growth of -0.9% hoh and will be interested to get an update on NAB's cost management initiatives has played out since the FY20 results."

Finally, a third thing to look out for is the bank's margins. While Goldman is expecting a decline in its net interest margin, it is optimistic that a recovery is coming.

Goldman said: "At the 1Q21 trading update NAB spoke to reported net interest margins having declined, but stable on an ex-Markets and Treasury and liquids basis. The underlying flat NIM was driven by competition and the impact of lower rates, offset by home loan repricing and lower funding and deposit costs. Our detailed analysis quantifies the scope for sector NIM upside in the near term. Accordingly, we forecast 1H21E NIM of 1.75% which is down 2bp vs 2H20 and will be keen to get an update on NAB's NIM performance."

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