National Australia Bank accelerates, as JB HiFi slows

The National Australia Bank (ASX:NAB) posted its third-quarter trading update, which was better than expected, supported by its home loans and business lending units. The bank is clearly accelerating towards second place in the Big Four, behind the clear leader, Commonwealth Bank. NAB posted an unaudited cash earnings increase of 10.3 percent to $1.7 billion for the June quarter, compared to a rise of just 1 per cent on the previous half.

The result was boosted by a reduction in bad loans, by $112 million. Analysts are touting the result to be better than CBA’s, due to costs being kept in check and asset quality remaining quite positive. Management has been focused on this for many years, when CBA was dealing with its own compliance issues. NAB plans to invest $100 million to “transform and revitalise the branch network, by adding meeting spaces and digital self-service bars'”. The bank has already launched a $2.5 billion share buyback in order to return capital to investors.

Overall, NAB is looking in top shape, with very strong capital as well as increasing dividends and payout ratios. NAB and the banking sector should continue to perform well.

• Macquarie has an ‘outperform’ recommendation with a target price of $29.00. The broker says NAB is ‘progressing well’ in bringing its branches bank into line and regaining market share.
• Morgans has a ‘hold’ recommendation with a target price of $27.50. The broker is a little less optimistic, retaining a neutral stance on the bank following its quarterly result. FY21 cash earnings per share (EPS) forecasts have been reduced by about 3 per cent owing to a “softer-than-expected Markets & Treasury outcome.”

All in all, a great result for NAB. The bank is well-placed to benefit from the COVID recovery, driven by business investment.

JB Hi-Fi (ASX:JBH) – The electronics king does it again. A bumper profit, but for how long? Lockdowns and softening sales have been flagged when it delivered its FY21 result. JBH, which also owns The Good Guys, delivered another bumper profit, but also flagged an end to its record-breaking run. Here are the details:

• JB Hi-Fi grew its sales by 12.6% to $8.9 billion and its profit by 67.4% to $506.1 million, which was better than an expected $456m.
• Online sales surged 78.1% to $1.1 billion.
• EBIT increase by 53.8% to $743.1 million.
• Earnings per share (EPS) jumped 67.5% to 440.8 cents.
• Online sales represented 11.9% of total sales. Excluding Victoria, online sales represented 10.3% of total sales.
• Final dividend of 18.9% to 107 cents per share. Total dividend for FY21 to 287 cents per share, up 51.9%.

The company also issued a FY22 trading update saying “in view of the ongoing uncertainty arising from COVID-19 we do not currently consider it appropriate to provide FY22 sales and earnings guidance.” The update paints a not-so-pretty picture. With two major cities in lockdown, one can only see that sales look set to plummet when compared to a year ago.

• UBS has a ‘neutral’ recommendation with a target price of $50.00. Consumers first spend money on technology, then entertainment, which helped JBH grow its profit margins. The broker says “The shifting of spending patterns has buoyed the stock as consumers initially spent money on technology and then more broadly on entertainment.” This drove gross margin expansion.
• Credit Suisse has an ‘outperform’ recommendation with a target price of $57.60. The broker is positive on the stock despite lockdowns constraining demand. However, beyond FY22 the broker forecasts sales and earnings to normalise. Credit Suisse estimates are above analysts’ consensus for FY22; it expects that high demand for electronics goods from the work-from-home arrangements should continue through to next year.

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.