Does NAB’s (ASX:NAB) stock price make it the best value bank right now?


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Key points

  • NAB’s share price has performed strongly over the past year
  • NAB invests in technology and efficiency to improve customer service and reduce loan processing times
  • Institutional investors appreciate the quality displayed by the bank

the National Australia Bank Ltd (ASX:NAB) the stock price is up 17% over the past year. This is a sonic outperformance of the S&P/ASX 200 Index (ASX:XJO) which has grown only 5.5% over the past year.

NAB went through a turnaround strategy with a relatively new leadership duo in place, both CEO and Chairman.

What helps NAB stock price outperform?

The bank is focused on improving its business banking and home loans.

It is investing in its small and medium business banking segment, as well as its corporate and private banking division, to grow by providing differentiated and better banking experiences for customers and colleagues.

One of the things it does in corporate banking is incorporate performance-driven disciplines. It also places greater emphasis on simplification, automation and digitization to deliver faster and more seamless banking experiences. It also leverages data and analytics to deliver insights, more personalized experiences, and faster decision-making.

In FY21, loans to small and medium enterprises increased by 7%. Its market share, both in loans to SMEs and to agriculture, improved during the year.

In the case of home loan, it’s a similar story where the experience is increasingly simplified and digitized. In FY21, it simplified and streamlined its home loan policies, rolled out digital apps and decision-making tools, and improved the ability for customers to self-serve through the NAB app.

These initiatives deliver faster and better results for clients and colleagues despite a significant increase in application volumes. Unconditional approval times are approximately 30% faster.

In FY21, NAB generated $6.56 billion in cash revenue, an increase of 76.8%. This is a 38.6% increase over fiscal year 2020, excluding major notable items in fiscal year 2020.

After such a big increase in earnings, is NAB’s share price now the best value?

Bank valuations

To simplify comparable bank valuations, here are the following estimates for AF23 on Commsec.

the Commonwealth Bank of Australia (ASX:CBA) stock price is valued at 18x ​​estimated FY23 earnings.

the Westpac Banking Corp. (ASX:WBC) stock price is set at 11x estimated FY23 earnings.

NAB shares are valued at 13x estimated FY23 earnings.

the Australia and New Zealand Banking Group Ltd (ASX:ANZ) stock price is valued at 12x estimated FY23 earnings.

So while NAB may have a fairly low P/E ratio for FY23, it is not as low as Westpac and ANZ.

However, some investors are fans of the work NAB is doing.

Is NAB’s stock price the bank’s best value?

Being the cheapest does not necessarily mean the best value.

Ord Minnett ranks NAB as its favorite in banking and ranks it as a buy with a price target of $31.50. This is more than 10% more than currently.

The managers of WAM Leaders Ltd (ASX:WLE) also favor NAB as a choice for exposure to large banks due to its capital management team, an industry-leading merchant bank taking market share, more advanced cost management initiatives than its peers and its strong capital position.


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