While rising interest rates will benefit net interest margins, Morgans adopts a more cautious stance on the banking sector as the new environment will also introduce some risks. These include detiorating asset quality and reduced attractiviness of dividend yields.
In addition, rising interest rates will mean term deposit rates normalise and Term Funding Facility (TFF) drawdowns are refinanced with conventional sources of funding, explains the analyst. It’s thought eposits in general may also flow out of the banking sysyem.
National Australia Bank is now Morgans preferred big four bank exposure and the target price rises to $34 from $30.50. It’s felt the bank’s operational performance relative to peers justifies stretched near-term valuation multiples. Hold.
Sector: Banks.
Target price is $34.00.Current Price is $32.20. Difference: $1.80 – (brackets indicate current price is over target). If NAB meets the Morgans target it will return approximately 5% (excluding dividends, fees and charges – negative figures indicate an expected loss).
