The National Australia Bank Ltd (ASX: NAB) share price is charging higher on Monday amid a recovery in the banking sector.
At the time of writing, the banking giant's shares are 2.5% to $27.70.
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Can the NAB share price keep rising?
The good news for investors is that this could be the start of even greater gains, according to analysts at Goldman Sachs.
This morning the broker has reiterated its conviction buy rating with an improved price target of $34.26.
Based on the current NAB share price, this implies potential upside of almost 24% for investors over the next 12 months.
But the returns don't stop there! The broker is forecasting fully franked dividends per share of 151 cents per share in FY 2022 and 168 cents per share in FY 2023.
This implies yields of 5.5% and 6%, respectively, and stretches the 12-month total return to almost 30%.
What did the broker say?
Goldman Sachs notes that NAB recently completed the acquisition of the Citibank Australian consumer business.
The broker highlights that the bank expects to deliver pre-tax annual cost synergies of $130 million per annum over three years, with the majority in years two and three. However, it estimates that NAB ultimately achieves just 80% of this target. This means there is upside risk to its estimates if the banking giant delivers on its targets.
One thing that Goldman and NAB agree on are the acquisition integration cost assumptions.
Our acquisition and integration cost assumptions are consistent with management guidance: pre-tax acquisition costs of A$20 mn, in addition to pre-tax integration costs of $355 mn, with majority incurred in FY22 and FY23.
Earnings boosted
Overall, Goldman expects the acquisition to be a modest boost to NAB's earnings per share and has upgraded its estimates for the coming years accordingly. This has led to the increased target on the NAB share price. It concludes:
We amend our NAB FY22/23/24E EPS by +0.6%/+2.0%/+2.3% post the completion of NAB's acquisition of Citigroup's Australian Consumer business
As a result of our EPS changes, our 12-month TP (equally weighted blend of our DCF and P/NTA vs. ROTE valuations), shifts to A$34.26 (from A$34.17), implying 31% TSR. There is no change to our Buy rating (on CL).
