National Australia Bank (NAB): Stay on the road but mind the scenery.

NAB’s key 2015 results are: (1) cash NPAT $5,839m (BP $6,259m, consensus $6,256m); (2) cash EPS 234cps [+11%] (BP 255cps, consensus 255cps); (3) final dividend 99cps fully franked (BP 99cps, consensus 99cps); (4) NIM 1.87% (BP 1.91%, consensus 1.91%); and (5) BDD charge $823m (BP $925m, consensus $888m). Price target $35.50, Buy rating maintained. We have lowered cash NPAT across the outer years by ~3%. This reflects weaker overall NIM (lowered by 4bp on a sustainable basis), lower other income (proportional removal of life insurance contributions) and a redistribution of the BDD charge (timing issue). While the price target is slightly reduced to $35.50 (previously $36.00), the Buy rating is unchanged. Concern about the weaker NIM is justified to a certain point but we feel the market has not fully appreciated NAB’s transformation progress to date. The bank continues to move closer to completing its strategic turnaround and a core business ROE milestone of 15% assuming UK demerger and IPO should underpin a healthy re-rating of the bank going forward. Read the report (VIEW LINK)