National Australia Bank Earnings: Margin Improvement Expected Despite Rising Bad Debts

We increase our fair value estimate on wide-moat-rated National Australia Bank by 3% to AUD 31 fair after a largely-expected fiscal 2023 result. The positive fair value uplift, given the time value of money, is partially offset by a modest reduction in our short-term profit forecasts, driven by a lower net interest margin and higher operating expenses. Fiscal 2023 cash profit increased 9% to AUD 7.7 billion, with the second half down around 10% on the first half as competition eroded the margin benefit of rapid cash rate increases. Shares currently trade at a modest discount to our fair value estimate, on a fully franked dividend yield of 5.8% and a P/E of 12.