National Australia Bank Limited

The NAB recently announced an interim profit of $1.88bn. Excluding goodwill and the revaluation of the wealth management business, the profit was $2.13bn, up 7.4%. The result was as we expected although the breakdown of the result disappointed us. While the other majors have been taking a conservative approach by increasing provisioning, the National actually reduced its provisioning. We also noticed that, to maintain its credit rating, the bank has raised its targeted capital ratios. That means the few billion dollars in surplus funds we mentioned in issue 126/May 03 (Buy - $32.88) won't be used to buy back stock, although the dividend was increased to 80 cents per share fully-franked (ex-date 6 Jun). The bank said that lending growth will slow but earnings per share should increase by high single digits. We recently stated that we're watching the National closely as it has failed to live up to expectations. While this result revealed a few more concerns, we're staying with BUY for now.