The National Australia Bank Ltd (ASX: NAB) share price has been lifting of late. It's gone up 18% since mid-June. After a strong run over the past two and a half months, is it too late to buy into the big S&P/ASX 200 Index (ASX: XJO) bank?
While NAB may be pretty similar to the other ASX bank shares of Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group Ltd (ASX: ANZ), and Westpac Banking Corp (ASX: WBC), there are some important differences.
One of the main factors that investors may focus on is earnings growth. Long-term profit growth could be an important driver of the NAB share price over time.
Certainly, NAB is growing its profit. Let's have a look at the latest profit numbers and what experts think of the bank.
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FY22 third quarter earnings recap
In the three months to June 2022, NAB generated $1.85 billion of statutory net profit and $1.8 billion of cash earnings. Year over year, cash earnings grew 6% with 10% growth when looking at cash earnings before tax and credit impairment charges.
The acquisition of Citigroup's Australian consumer business was effective from 1 June 2022.
NAB outlined the effect of including and excluding the Citi acquisition compared to the FY22 first half quarterly average cash earnings before credit impairment charges and tax of $2.43 billion. Including the Citi acquisition, underlying cash earnings rose 3% and excluding the Citi acquisition underlying cash earnings rose 2%.
The big bank also said that the acquisition boosted the net interest margin (NIM) by 1 basis point (0.01%), it increased gross lending balances by $13.2 billion ($9.2 billion of home loans and $4 billion of credit cards and other unsecured personal lending). The deal also came with $9.4 billion of deposit balances.
In terms of its loan book, its arrears were in a good place at the end of June 2022. Over the quarter, loans that were at least 90 days overdue reduced from 0.75% to 0.7%. However, this quarter came before the significant increases in the Reserve Bank of Australia (RBA) interest rate really started flowing through to mortgage rates. Time will tell how the loan book performs in the coming months as households suffer a big increase in their mortgage costs.
Expert views on the NAB share price
There is a range of views on NAB.
The broker Morgan Stanley thinks the NAB share price will fall, with a price target of $27.20, implying a drop of more than 10%. The rating is equal-weight, which is like a hold rating. It thinks growth will slow and that banks could see higher bad debts in the future as higher interest rates bite.
UBS has a neutral rating on NAB, with a price target of $33. That implies a rise of close to 10% over the next year. It thought the third quarter was good and noted that a majority of borrowers are ahead on their mortgage payments.
The broker Ord Minnett rates NAB as accumulate, with a price target of $32.70. It's expecting a good final quarter of FY22 and it's also expecting revenue growth over the next two halves as interest rates rise.
Experts are expecting pretty big dividends from NAB. For example, at the current NAB share price, Ord Minnett is expecting the bank share to pay a grossed-up dividend yield of 7% in FY22 and 7.8% in FY23.
