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Is the NAB (ASX:NAB) share price a buy? Top broker expects sector-leading earnings growth

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One of the leading brokers in Australia has had a close look at the National Australia Bank Ltd (ASX: NAB) share price.

The judgement is that NAB is a leading investment candidate in the banking sector to consider.

The NAB share price has continued to rise since the low of the COVID-19 crash.

In 2022 to date, NAB shares have risen by 2%. In the past year it has gone up by 14.5%.

The bank has experienced volatility in the last couple of months, just like most ASX shares on the share market.

The latest business insight that investors have had about NAB was its FY22 first-quarter update.

Quarterly update

It generated $1.8 billion of cash profit – this was up 9.1% year on year. Cash earnings before tax and credit impairment charges were up 6%.

NAB explained that asset quality remained “benign” and it’s experiencing “good momentum” across the business despite the environment remaining competitive.

In Australia over the three months to December 2021, home lending grew by 2.6% and SME (small and medium enterprise) business lending increased by 3.4%. It gained market share in its core lending and deposit products. New Zealand loan growth was 2.2%.

Looking at how that profit growth occurred – revenue rose 8%, reflecting higher volumes. Expenses increased 2%, mainly reflecting higher salaries and leave costs, combined with investment to support growth, partly offset by productivity benefits. It’s targeting broadly flat expenses in FY22.

Profit and profitability can have a sizeable influence on the NAB share price in the eyes of some investors.

The net interest margin (NIM) – a key banking profitability metric – saw a decline of 5 basis points to 1.64%. Part of that decline happened because of competitive pressures and the housing lending mix.

NAB’s ratio of loans that are more than 90 days past due decreased 13 basis points to 0.81%.

The NAB CEO Ross McEwan said:

We remain optimistic about the outlook of Australia and New Zealand and are well positioned to continue to grow with a strong balance sheet and disciplined execution of a clear strategy.

Is the NAB share price a buy?

Ord Minnett certainly thinks so, with an ‘accumulate’ rating. It has a price target of $33.50, which offers an upside of around 10%.

The broker thinks that NAB will be able to offer better earnings growth than its competitors like Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC).

Ord Minnett thinks that NAB will pay a grossed-up dividend yield of 7% in FY22.

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