Is the NAB (ASX: NAB) share price offering great value in the midst of COVID-19?
What does NAB do?
NAB is one of the four largest financial institutions in Australia in terms of market capitalisation, earnings and customers. However, in 2018, it was Australia’s largest lender to businesses and has operations in wealth management and residential lending. It also operates the online-only Ubank.
Is the NAB share price a buy?
The major ASX bank recently announced its FY20 half-year result and showed a statutory net profit of $1.31 billion. The bank’s cash profit was $1.44 billion, down 51.4% compared to a year ago.
However, excluding ‘large notable items’, like the ones previously announced, NAB generated cash earnings of $2.47 billion which was a reduction of 24.6%. That’s not terribly bad, but still painful.
COVID impacts loom large
There’s a reason why the NAB share price is down around 43% from its pre-COVID-19 high. Included in its half-year result was an $807 million provision relating to potential COVID-19 impacts.
Another reason for the drop is that the recent capital raising price was $14.15, which was an 8.5% discount to the previous closing price. That’s a low price and it dilutes shareholders because the new shares issued will represent 7.1% of NAB’s existing shares.
In terms of the share price, NAB may be a cheap buy if the economy recovers strongly. But what about the dividend? Well, we saw a dividend cut to $0.30 per share, which represents a fall of just under 64%.
Annualised, that NAB dividend represents a fully franked yield of 3.8%. That’s not the high yield it once had. You might consider adding a dividend rich ETF like Vanguard VHY or VanEck’s MVW ETF.
I think it’s too soon to buy NAB shares, but brave investors may see long term value. I don’t yet.
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