NAB shares take a hit on ASX return

NAB’s shares tumbled nearly 5 per cent in early trading as investors reacted to its slashed dividend and capital raising plans.

NAB shares fell in the early session as they resumed trading on the ASX on Tuesday. Picture: AAP

National Australia Bank’s shares tumbled on Tuesday, after it slashed interim dividends, warned of a spike in loan losses and ruled off a $3bn capital raising for institutional investors.

The stock fell as much as 4.8 per cent to $15 as it resumed trading on Tuesday, following the capital raising. The shares regained some momentum to close down 2.8 per cent at $15.32, but still outpaced a 0.2 per cent decline in the S&P/ASX200.

The bank told the ASX it had completed a $3bn fully underwritten placement of new stock to domestic and offshore-based institutional investors.

The capital raising – which includes a $500m share purchase plan for retail shareholders – polarised analysts on Monday, with some questioning why the bank was tapping investors at the same time it announced it was slashing the first-half dividend to 30c a share from 83c.

Under the share placement, NAB is issuing about 212 million new fully paid ordinary shares at a price of $14.15 apiece.

“Eligible institutional shareholders who bid for an amount less than or equal to their ‘pro rata’ share of placement shares were allocated their full bid. The balance of the placement was also allocated to existing shareholders,” the ASX statement said. The placement shares are not entitled to the markedly reduced 2020 interim dividend and will start trading on Friday.

Details of the share purchase plan will be dispatched to eligible shareholders on or around May 4, and it is scheduled to close May 22.

The raising came as NAB chief executive Ross McEwan outlined a big hit from COVID-19, with net profit roughly halving to $1.4bn. The bank also booked an additional $807m in economic provisions for the potential impact of the pandemic, which saw loan impairments surge to $1.2bn.

Shaw and Partners banking analyst Brett Le Mesurier cut his 2021 and 2022 earnings estimates for NAB by 5 per cent due to the capital raising and also reduced his share price target to $19.

“While credit risk is the most significant risk faced by the company at present, other risks include; potential Austrac penalties, increases in the cost of funding … further mark to market trading losses; and lower growth in revenue associated with NIM (net interest margin) pressure and deteriorating lending conditions,” he said, while maintaining his “buy” rating on NAB.

“The outlook for revenue growth is promising due to the improved trading result for April and the growth that NAB is experiencing in business loans. Australian business loan growth from FY19 to FY20 is expected to be in the range of 13 per cent to 16 per cent as businesses draw down on credit lines.”

Bell Potter analyst TS Lim also cut his earnings estimates for NAB but left his price target unchanged.

“We have maintained the $17 price target with the impact of lower sequential dividends just offset by a 50 basis point reduction in the bank’s cost of equity to 12 per cent,” he said.

Goldman Sachs noted softer market and treasury performance was a key weakness for NAB compared to the previous corresponding half.

Analysts at Credit Suisse reduced their 12-month target price for NAB shares from $19.50 to $18.50, noting the $807m increase in economic provisions may not be enough to buffer the financial impacts caused by coronavirus.

“In our view, the $807mn increase in provisions for COVID-19 appears light and seems incongruent against the commentary of ‘unprecedented’ and ‘uncertain outlook’,” the broker said.

JP Morgan also flagged that NAB’s proposed “V-shaped” recovery may be “optimistic”, as analysts and investors scramble to get a handle on how much damage the virus and its fallout will cause in the banking sector.