Is the NAB (ASX: NAB) share price a buy after announcing a $1.14 billion profit hit? The NAB share price is down 0.7% right now.
What is NAB?
NAB is one of the four largest financial institutions in Australia in terms of market capitalisation, earnings and customers. However, in 2018, it was Australia’s largest lender to businesses and has operations in wealth management and residential lending. It also operates the online-only Ubank.
What did NAB announce?
NAB announced that the FY20 first half earnings will be reduced by a number of charges.
The major bank will be releasing its result soon, but sometimes companies release accounting hits to the profit before releasing the main report. There were three announced items.
A net increase in provisions for customer-related remediation amounting to $268 million before tax and $188 million after tax. NAB noted that customer payments still hasn’t been completed.
There has been a change to NAB’s software capitalisation policy which will reduce NAB’s capitalised software balance at 31 March 2020 by $1.056 billion and reduce earnings before $742 million after tax.
NAB’s investment value of MLC Life is being impaired by $214 million before and after tax, a reduction of 37%.
What does this mean for NAB?
Well it obviously means a large reduction in profit this year. It also means that FY20’s result will be even harder hit once the impact of the COVID-19 pandemic on NAB’s earnings and balance sheet are announced. These are rough times.
It is almost certain that the NAB dividend will be reduced. We just don’t know how much yet. My guess is for a 50% cut, maybe even more. The banks are cheap, but I don’t think they’re great value yet. I’d rather buy these tech shares:
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
