It has been a big past year for the National Australia Bank (ASX:NAB) share price

The NAB share price has been a very strong performer over the last 12 months.

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The National Australia Bank Ltd (ASX: NAB) share price has had a very strong year. Over the last 12 months it has risen by 45%.

In the 2021 calendar year to date it has gone up by 14.3%, and that does not include the dividend return paid to shareholders.

The NAB share price is recovering, what about the profit?

A year ago the world was in the middle of the COVID-19 global lockdowns. At that time, NAB was provisioning a large amount of capital to cover the bank for a possible wave of bad loans.

In FY20, NAB's credit impairment charges increased 201% to $2.76 billion and as a percentage of gross loans and acceptances, rose 31 basis points to 46 basis points. Those FY20 charges included $1.86 billion of additional forward looking collective provisions to reflect potential COVID-19 impacts. The bank noted elevated levels risk in some sectors including aviation, tourism, hospitality and entertainment, retail trade and commercial property.

It generated FY20 full year statutory net profit of $2.66 billion and cash earnings of $3.71 billion – down 36.6% on FY19. Excluding large notable items, it made $4.73 billion of cash earnings, down 25.9%.

But the economic recovery from that has been stronger than the bank was expecting.

A couple of months ago in the FY21 half-year result release, the NAB CEO Ross McEwan said:

The rebound in the Australian and New Zealand economies from COVID-19 has been better than expected. This, along with the vaccine rollout and continued strong health outcomes, make us optimistic about the outlook.

But risks do remain. The recovery is not even, and some customers such as those in international travel and hospitality, particularly in CBD areas, still face significant challenges. Longer term outcomes for these customers depend on a number of factors expected to become clearer in coming months. These include the impact of jobkeeper ending, timing of the vaccine rollout and the reopening of international borders.

Since the release of the NAB half-year result on 6 May 2021, the NAB share price has gone down by around 4%.

NAB's half-year result

In NAB's half-year result it reported $3.21 billion of statutory net profit. It also reported $3.34 billion of cash earnings, up 94.8%. The cash earnings growth was 35.1% excluding large notable items.

The major bank revealed that credit impairment charges were actually a write-back of $128 million, compared to a charge of $1.16 billion in the first half of FY20.

At the time of the result release, the bank said:

We are optimistic about the future. Economic and health outcomes are improving rapidly, we are making good progress implementing our refreshed strategy and momentum is building across our business. While there is still much to do, we are on the right track, creating a simpler and more accountable business. This is enabling us to more consistently get the basics right and deliver for our colleagues and customers.

Should investors look at the NAB share price?

Brokers have noted that recovery of profit for NAB and the potential for capital returns with the excess capital sitting on the balance sheet.

However, the NAB share price is no longer a buying opportunity to most of the brokers. For example, Morgan Stanley thinks NAB is a hold with a price target of $27.20.

Morgans thinks the NAB share price share price is a hold as well, with a price target of $27.50.

According to Morgans, NAB shares are valued at 13x FY22's estimated earnings, with a FY22 grossed-up dividend yield of 7.1%.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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