MARKETS SPECTATOR: Nagging at NAB's slim savings

Following NAB’s group strategy update yesterday, Citigroup has lowered its recommendation to neutral from buy following the big rally in price and as it believes the briefing may fall short of market expectations.

The announcement of $800 million in cost savings over the next five years hasn’t changed Citigroup estimates and it notes that the senior management changes are largely movements within the existing team. It does see the replacement of CFO Mark Joiner as an opportunity to strengthen the executive team from outside.

Elsewhere in the broker ranks, JP Morgan has retained its overweight recommendation: “NAB’s strategy and technology update reinforced our view that in a low growth environment, an expense focus is a necessity, not an opportunity.”

"By outlining its progress on the technology agenda and a shift to a centralised shared services model we can now see the path by which NAB will achieve our currently forecasted ~2.5 to 3 per cent expense growth trajectory over coming years," the broker said. "Delivering on expectations will help close the ongoing relative price-earnings gap."

Elsewhere, UBS retained its neutral recommendation on the bank, saying “NAB’s technology and strategy update was upbeat, with management more relaxed and confident than they have appeared for a long time".

"NAB’s technology transformation program has been like a duck’s feet underwater," the broker said. "With most of the ‘NextGen’ platform now operational, NAB is in a position to provide cost savings targets. Unfortunately, the targeted savings of $800 million over five years (less amortisation and implementation costs leaving net ~$540 million savings) disappointed, especially compared to the $1 billion mooted across multiple media reports this week.”