K-I-S-S the Fat Pitch

Romano Sala Tenna

Katana Asset Management

Keep it simple – sir! Without wishing to belie our 100+ years of combined experience (read combined mistakes), it would appear that Mr Market is throwing us a fat pitch with the recent pullback in the bank index. As an example we are anticipating that NAB will pay $2- even fully franked in the 2016FY (note consensus dps of $1.96). At $32.75 this equates to a grossed up yield of 8.72% - 600+ basis points above cash alternatives, with the potential for ‘special’ dividends as non-performing assets are ex-communicated. Another way to look at it is that the NAB share price would need to fall to below $30.79 to be worse off than holding the best alternative. By the 2nd year, this works even more in our favour; ie the NAB share price would need to decline to below $28.79 to once again be worse off and below $27.42 to generate a negative return. Of course this is possible, but the odds appear stacked in our favour. And we may even experience additional returns in the form of capital gains!

Romano  Sala Tenna
Portfolio Manager
Katana Asset Management

Katana Asset Management was founded in September 2003 as a boutique investment management firm. Katana employs an all opportunity investment mandate being style, sector and market cap agnostic.

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