National Australia Bank (NAB)

Transcription

1 6 February 2017 Analyst TS Lim Authorisation Chris Savage Recommendation Buy (unchanged) Price $30.39 Target (12 months) $32.50 (previously $30.00) Expected Return Capital growth 6.9% Dividend yield 6.2% Total expected return 13.1% Company Data & Ratios Enterprise value Market cap n/m $81,149m Issued capital 2,670m Free float 100% Avg. daily val. (52wk) $186.7m 12 month price range $ $32.10 GICS sector Price Performance Banks (1m) (3m) (12m) Price (A$) Absolute (%) Rel market (%) National Australia Bank (NAB) Walk the line 1Q17 cash NPAT ~$1.6bn, underlying sound NAB s 1Q17 unaudited cash NPAT for continuing operations was down by ~1% pcp to ~$1.6bn (~1% below the average over 3Q16 and 4Q16), largely impacted by higher staff costs from the 1 October 2016 EBA arrangement. The result was, however, in line with consensus and our expectation. Revenue growth was ~1% pcp higher due to higher lending volumes and trading income while Group NIM was broadly stable. This was a good achievement given NAB s historically weaker NIM and also higher funding costs heading into the end of calendar year We estimate at least 2bp upside in the second half for NAB given recent mortgage lending rate rises of 10-15bp. The 5% pcp higher expenses could be viewed as a negative. However, this was largely impacted by timing-related factors (e.g. higher EBA-related staff 3% per year until 2019 and 488 redundancies), increased depreciation and amortisation charges (reflecting ongoing conservatism in treating capitalised items, e.g. PBOP) and higher project and regulatory spend. Expected productivity savings of ~$200m should ensure positive Jaws over There is nothing new in NAB s first quarter expense increase noting similar expense growth of ~5% in 1Q16 given the same reasons that translated into 2% overall expense growth for the full year net of productivity gains. Asset quality remains manageable in our view while CET1 capital ratio of 9.5% exceeded the % internal target range. Price target increased to $32.50, Buy rating maintained Our 2017 forecasts are largely unchanged although we have increased subsequent year cash NPAT by 1% due to 2bp higher NIM from mortgage rate increases. The price target is increased by ~8% to $32.50 (previously $30.00) given the 1% higher cash NPAT across the forecast horizon, the benefit of DCF time creep and reducing the dividend valuation capitalisation rate from 6.25% to 5.75%. The Buy rating is maintained as NAB s improving risk-adjusted return profile should continue to underpin future price resilience. Absolute Price $42 $37 $32 $27 $22 Feb 15 MayAug NAB Nov 15 FebMayAugNov S&P 300 Rebased Earnings Forecast Year end 30 September e 2018e 2019e NPAT (reported) (A$m) 352 6,489 6,947 7,343 NPAT (adjusted) (A$m) 6,483 6,429 6,887 7,283 EPS (adjusted) (A ps) EPS growth (%) -2% -3% 6% 5% PER (x) P/Book (x) P/NTA (x) Dividend (A ps) Yield (%) 6.5% 6.2% 6.2% 6.3% ROE (%) 14.3% 13.6% 14.0% 14.1% NIM (%) 1.88% 1.83% 1.84% 1.84% Franking (%) 100% 100% 100% 100% SOURCE: IRESS SOURCE: BELL POTTER SECURITIES ESTIMATES BELL POTTER SECURITIES LIMITED ACN AFSL DISCLAIMER AND DISCLOSURES THIS REPORT MUST BE READ WITH THE DISCLAIMER AND DISCLOSURES ON PAGE 8 THAT FORM PART OF IT. Page 1

2 Walk the line 1Q17 cash NPAT ~$1.6bn, underlying sound NAB provided a limited 1Q17 trading update today. Unaudited cash NPAT for continuing operations was down by ~1% pcp to ~$1.6bn (~1% below the average over 3Q16 and 4Q16) and this was largely impacted by higher staff costs from the 1 October 2016 EBA arrangement. However, the result was in line with consensus and our expectation. Similarly, unaudited reported NPAT of ~$1.6bn (down by ~1% pcp) was in line with consensus and our expectation. Revenue growth was ~1% pcp higher due to higher lending volumes and trading income while Group NIM was broadly stable presumably 1.82% vs. a similar figure in 2H16 (BP 1H17 forecast 1.82%). We suspect revenue growth would have been higher if not for targeted and ongoing runoff in low-roe corporate and institutional lending. Be that as it may, stable Group NIM is considered a good achievement for NAB given its historically weaker NIM among the majors and also higher sector-wide funding costs heading into the end of calendar year We estimate at least 2bp upside in the second half for NAB given recent mortgage lending rate rises of 10-15bp. The 5% pcp higher expenses (and negative Jaws ) could be viewed as a negative on the surface. However, this was largely impacted by timing-related factors (e.g. higher EBArelated staff costs covering ~35,000 3% per year until 2019 as well as 488 redundancies), increased depreciation and amortisation charges (reflecting ongoing conservatism in treating capitalised items, e.g. PBOP) and higher project and regulatory spend. Expected productivity savings of ~$200m should ensure positive Jaws over There is nothing new in NAB s first quarter expense increase noting similar expense growth of ~5% in 1Q16 given the same reasons that translated into 2% overall expense growth for the full year net of productivity gains. The BDD charge was 23% pcp lower at $164m, driven by a non-repeat of higher collective provisions for mining, mining-related and agricultural exposures in 2H days past due and GIA as a percentage of GLA were only 5bp higher at 90bp at the end of 1Q17 (mainly in the corporate and non-retail SME space we suspect a handful of single names and some New Zealand dairy exposures but with no loss expected) but these appear to be in line with the sector average based on our estimates. Residential mortgage credit quality was stable with unchanged 90+days past due and GIA loans and lower specific charges and write-offs. The overall specific provision as a percentage of GIA increased from 38% to 43%. The difference between the $164m BDD charge and a much higher $272m specific charge implied some collective write-backs/recoveries. CET1 capital ratio was 9.5% (vs. 9.8% at the end of 2H16 and internal target of %) with the slight decrease reflecting the payment of the final 2016 dividend. The Leverage ratio was similarly down by 30bp to 5.4% given the final dividend payment while the Liquidity Coverage Ratio further improved over the quarter from 119% to 124% (Group NIM would have been even higher if not for this increased liquidity drag). Despite higher expenses and a lower BDD charge, we believe this was another credible NAB result built upon a stronger and more sustainable top line growth and a focus on the core and higher ROE Australian and New Zealand operations. Price target increased to $32.50, Buy rating maintained Our 2017 forecasts are largely unchanged although we have increased subsequent year cash NPAT by 1% (Table 1, page 3) due to 2bp higher NIM from mortgage rate increases. The price target is increased by ~8% to $32.50 (Tables 2 and 3 on page 3, previously Page 2

3 $30.00) given the 1% higher cash NPAT across the forecast horizon, the benefit of DCF time creep and reducing the dividend valuation capitalisation rate from 6.25% to 5.75%. The Buy rating is maintained as NAB s improving risk-adjusted return profile should continue to underpin future price resilience. Table 1 Estimate changes NAB 2017e 2018e 2019e 2020e Y/e September 30 ($m) Current Previous Change Current Previous Change Current Previous Change Current Previous Change Profit & Loss Net interest income 13,024 12,991 0% 13,830 13,722 1% 14,613 14,498 1% 15,357 15,236 1% Other income 4,655 4,659 0% 4,792 4,796 0% 5,019 5,024 0% 5,256 5,261 0% Total operating income 17,678 17,650 0% 18,622 18,518 1% 19,631 19,522 1% 20,613 20,497 1% Operating expenses -7,493-7,503 0% -7,642-7,651 0% -7,834-7,843 0% -8,024-8,034 0% Impairment expenses -1,076-1,079 0% -1,208-1,211 0% -1,352-1,355 0% -1,507-1,511 0% Net profit before income tax 9,109 9,069 0% 9,772 9,655 1% 10,446 10,323 1% 11,081 10,952 1% Corporate tax expense -2,561-2,549 0% -2,765-2,732-1% -3,043-3,007-1% -3,276-3,237-1% Distributions & other n/m n/m n/m n/m NPAT (cash basis) 6,429 6,400 0% 6,887 6,804 1% 7,283 7,196 1% 7,686 7,595 1% DPS (cps) % % % % EPS (cash basis) (cps) % % % % ROE 13.6% 13.6% 0.1% 14.0% 13.8% 0.2% 14.1% 13.9% 0.1% 14.1% 14.0% 0.1% NIM 1.83% 1.82% 0.01% 1.84% 1.82% 0.02% 1.84% 1.82% 0.02% 1.83% 1.81% 0.02% Cost ratio 42% 43% 0% 41% 41% 0% 40% 40% 0% 39% 39% 0% Impairment expense as % of GLA 0.19% 0.19% 0.00% 0.20% 0.20% 0.00% 0.21% 0.22% 0.00% 0.23% 0.23% 0.00% Table 2 NAB SOP valuation (revised) Sum-of-Parts (As Is) 2018e NPAT Pros. PE (times) Australia Banking 5, ,532 $26.04 UK (as is) $0.00 Wholesale (in Australia Banking) $0.00 Wealth ,063 $1.52 NZ ,728 $2.89 Other including distributions $0.32 Total 6, ,460 $30.13 Table 3 NAB composite valuation (revised) Composite Valuation Weighting Composite value per NAB DCF 85,785 $ % $12.85 Dividend yield (sustainable) 87,074 $ % $13.04 ROE (sustainable) 89,724 $ % $3.36 Sum-of-Parts 80,460 $ % $3.01 Total $32.27 Table 4 NAB SOP valuation (previous) Sum-of-Parts (As Is) 2017e NPAT Pros. PE (times) Australia Banking 5, ,672 $24.34 UK (as is) $0.00 Wholesale (in Australia Banking) $0.00 Wealth ,877 $1.46 NZ ,385 $2.78 Other including distributions ,158 -$0.44 Total 6, ,776 $28.14 Table 5 NAB composite valuation (previous) Composite Valuation Weighting Composite value per NAB DCF 78,926 $ % $11.88 Dividend yield (sustainable) 79,709 $ % $12.00 ROE (sustainable) 74,772 $ % $2.81 Sum-of-Parts 74,776 $ % $2.81 Total $29.51 Page 3

4 Figure 1 Impact of NAB s UK demerger and IPO on price $40 NAB de-risking timeline Share price $35 $30 $25 Post GFC: Announces additional $830m CDO provisions Proposes AXA AP acquisition AXA AP acquisition knocked back by ACCC twice, terminated UK bank capital increased, stategic review commenced 5.6bn noncore UK CRE assets transferred to Group CEO Andrew Thorburn appointed Aug 2014 UK CRE runoff: 2.2bn (39% of original balance) Sale of 80% of MLC Life UK demerger & IPO complete $20 CEO Cameron Clyne appointed Jan 2009 Capital raising ($3bn and $2.7bn), acquires Aviva $15 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 SOURCE: BLOOMBERG, COMPANY DATA AND BELL POTTER SECURITIES ESTIMATES UK CRE runoff: 4.4bn (78% of original balance) UK CRE runoff: 3.3bn (59% of original balance) UK conduct costs $5.5bn capital raising, GWB IPO, UK demerger & IPO proposed, UK CRE runoff completed Figure 2 NAB has a bit more to go Global Banks (Consensus) 20% Relatively inexpensive Correlation 0.94 CM RY Prospective 2017e ROE 15% 10% 5% BNP CITI BARC ACA LLOY ING GS BAC HSBC BNS WBC NAB BMO ANZ TD MQG JPM WFC NDA BBT PNC USB CBA RBS STAN CBK DBK Relatively expensive 0% Prospective 2017e Price / Book (times) SOURCE: BLOOMBERG Page 4

5 National Australia Bank Company description NAB is a well-diversified financial services organisation providing a comprehensive range of retail and wholesale banking and wealth management products and services. The bank largely operates in Australia (under the NAB umbrella brands) and in New Zealand (under the BNZ brand) and remains a leader in SME/business banking. Investment strategy NAB s turnaround and de-risking phase is largely complete following the demerger and IPO of CYB. The bank is now focused on the lower risk, capital efficient domestic financial services market space. Our investment strategy is predicated upon NAB improving its NIM (through repricing and pricing discipline), maintaining tight cost management and lifting its overall ROE to levels that are closer to those of its major bank peers (i.e. of 12-15%). Valuation Our price target is roughly based on a blend of DCF, sustainable dividend yield play, sustainable ROE and fully de-risked SOP valuation weighted as follows (with a heavier weighting on DCF and sustainable dividend yield methods and as its ROE outlook normalises towards 14% in the long term). Table 6 NAB SOP valuation (revised) Sum-of-Parts (As Is) 2018e NPAT Pros. PE (times) Australia Banking 5, ,532 $26.04 UK (as is) $0.00 Wholesale (in Australia Banking) $0.00 Wealth ,063 $1.52 NZ ,728 $2.89 Other including distributions $0.32 Total 6, ,460 $30.13 Table 7 NAB composite valuation (revised) Composite Valuation Weighting Composite value per NAB DCF 85,785 $ % $12.85 Dividend yield (sustainable) 87,074 $ % $13.04 ROE (sustainable) 89,724 $ % $3.36 Sum-of-Parts 80,460 $ % $3.01 Total $32.27 SWOT analysis Strengths 1. Agribusiness and SME / commercial banking capabilities; 2. Highest proportion of investment grade exposures in the sector; 3. Lowest exposure to mining and energy; 4. High quality mortgage loan book; 5. Well diversified geographically; 6. Management execution; and 7. Cost discipline and ROE focus. Weaknesses 1. NIM still soft in business lending; and 2. Market loss in SME/business banking segments. Page 5

6 Opportunities 1. Further domestic banking and wealth management opportunities based on securing alternate distribution strategies; and 2. Driving the Personal and Business Banking cost ratio to below 35%. Threats 1. Macroeconomic factors, e.g. unemployment and slowing credit growth; 2. Changes in regulatory environment, especially higher liquidity/capital/funding constraints under proposed global regulatory reforms, and the potential capping of funds management and advice fees that would crimp wealth management earnings growth; and 3. Increased competition specifically from the majors and disruptors on the domestic front in retail and wholesale banking and wealth management. Sensitivities Table 8 NAB sensitivities Y/e September e 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e Sensitivities Group NIM +10bp NPAT upside (cash basis) 7.8% 7.6% 7.6% 7.6% 7.8% 7.8% 7.9% 8.0% 8.0% - Price target upside $2.50 $2.47 $2.46 $2.46 $2.51 $2.53 $2.55 $2.57 $2.60 Group Loans +1% NPAT upside (cash basis) 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% - Price target upside $0.23 $0.23 $0.23 $0.23 $0.23 $0.23 $0.23 $0.23 $0.23 Australian loans +1% NPAT upside (cash basis) 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% - Price target upside $0.27 $0.27 $0.27 $0.27 $0.27 $0.27 $0.27 $0.27 $0.27 NZ loans +1% NPAT upside (cash basis) 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% - Price target upside $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 Other income +1% NPAT upside (cash basis) 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% - Price target upside $0.16 $0.16 $0.16 $0.15 $0.15 $0.16 $0.16 $0.16 $0.16 BDD +1% NPAT upside (cash basis) -0.1% -0.1% -0.1% -0.1% -0.1% -0.2% -0.2% -0.2% -0.2% - Price target upside -$0.04 -$0.04 -$0.04 -$0.04 -$0.05 -$0.05 -$0.05 -$0.06 -$0.06 Costs +1% NPAT upside (cash basis) -0.8% -0.8% -0.8% -0.7% -0.7% -0.7% -0.7% -0.8% -0.8% - Price target upside -$0.26 -$0.25 -$0.24 -$0.24 -$0.24 -$0.24 -$0.24 -$0.24 -$0.24 Page 6

7 National Australia Bank as at 6 February 2017 Recommendation Buy Price $30.39 Target (12 months) $32.50 National Australia Bank (NAB) 6 February 2017 Table 9 Financial summary National Australia Share Price (A$) As at 6-Feb-17 Market Cap (A$M) 81,149 PROFIT AND LOSS VALUATION DATA Y/e September 30 ($m) e 2018e 2019e Y/e September e 2018e 2019e Net interest income 12,525 12,809 13,024 13,830 14,613 NPAT (cash basis) ($m) 6,222 6,483 6,429 6,887 7,283 Other banking income 3,309 3,438 3,360 3,456 3,650 EPS (statutory basis) (cps) Total banking income 15,834 16,247 16,384 17,287 18,262 - Growth 10% -97% 2625% 6% 5% Funds management income 1,208 1,233 1,295 1,335 1,369 EPS (cash basis) (cps) Insurance income Growth 10% -2% -3% 6% 5% Total operating income 17,042 17,480 17,678 18,622 19,631 P / E ratio (times) Operating expenses -7,315-7,485-7,493-7,642-7,834 P / Book ratio (times) Impairment expenses ,076-1,208-1,352 P / NTA ratio (times) Net profit before income tax 8,979 9,195 9,109 9,772 10,446 Net DPS (cps) Corporate tax expense -2,582-2,588-2,561-2,765-3,043 Yield 6.5% 6.5% 6.2% 6.2% 6.3% Minority interests Franking 100% 100% 100% 100% 100% Investment experience Payout (cash basis) 79% 81% 79% 74% 73% Distributions & other NPAT (cash basis) 6,222 6,483 6,429 6,887 7,283 CAPITAL ADEQUACY Adjustments 116-6, Y/e September e 2018e 2019e NPAT (statutory basis) 6, ,489 6,947 7,343 Risk weighted assets ($m) 399, , , , ,869 Average risk weight 43% 52% 52% 52% 52% CASHFLOW Tier 1 ratio 12.4% 12.2% 12.1% 12.1% 12.1% Y/e September 30 ($m) e 2018e 2019e CET1 capital ratio 10.2% 9.8% 9.8% 9.9% 10.1% NPAT (cash basis) 6,222 6,483 6,429 6,887 7,283 Total capital ratio 14.1% 14.1% 14.0% 13.9% 13.8% Equity ratio 5.8% 6.6% 6.6% 6.5% 6.5% Increase in loans -94,059 6,461-23,837-28,233-29,701 Increase in other assets 11, ,302-13,241-14,321-15,489 DIVISIONAL Capital expenditure Y/e September 30 ($m) e 2018e 2019e Investing cashflow -82, ,081-37,120-42,598-45,236 Australian Banking Net interest income 10,727 11,170 11,400 12,152 12,873 Increase in deposits & borrowings 23,369 28,471 22,272 25,844 27,459 Other income 2,666 2,878 2,897 2,973 3,143 Increase in other liabilities 40, ,703 12,729 14,110 14,833 Total banking income 13,393 14,048 14,297 15,124 16,016 Equity raised 6, Operating expenses -5,556-5,782-5,829-5,982-6,134 Other -4,515-8,270-5,058-4,983-5,091 Impairment expenses ,038-1,175 Financing cashflow 65, ,868 30,691 35,711 37,953 Net profit before tax 7,172 7,627 7,556 8,104 8,707 Corporate tax expense -2,071-2,155-2,138-2,310-2,568 Net change in cash -10, NPAT (cash basis) 5,101 5,472 5,419 5,794 6,138 Cash at end of period 30,934 30,630 30,630 30,630 30,630 Home loans 268, , , , ,933 Other loans 190, , , , ,778 BALANCE SHEET Deposits 320, , , , ,160 Y/e September 30 ($m) e 2018e 2019e Cash and liquid assets 30,934 30,630 30,630 30,630 30,630 UK Banking Divisional gross loans 520, , , , ,764 Net interest income Provisions -4,165-3,523-3,689-3,878-4,082 Other income Other gross loans / inter div. 35,600 4,370 3,529 2,688 1,847 Total banking income Other IEA 213, , , , ,287 Operating expenses Intangibles 7,347 5,302 5,302 5,302 5,302 Impairment expenses PP&E 1,741 1,423 1,466 1,510 1,556 Net profit before tax Insurance assets 89, Corporate tax expense Other assets 60,248 32,180 32,180 32,180 32,180 NPAT (cash basis) Total assets 955, , , , ,576 Home loans Other loans Divisional deposits 362, , , , ,075 Deposits Other borrowings 427, , , , ,103 Other liabilities 110,287 10,377 10,377 10,377 10,377 NAB Wealth Total liabilities 899, , , , ,555 Wealth management income 1,208 1,233 1,295 1,335 1,369 Insurance income Ordinary capital 31,334 30,968 31,716 32,456 33,208 Total operating income 1,208 1,233 1,295 1,335 1,369 Other equity instruments 3,317 3,317 3,317 3,317 3,317 Wealth management expense Reserves Other expenses Retained profits 21,205 16,378 17,749 19,653 21,844 Net profit before tax Minority interests Corporate tax expense Total holders' equity 55,513 51,315 53,434 56,078 59,021 Investment experience NPAT (cash basis) Total sh. equity & liabs. 955, , , , ,576 FUA 168, , , , ,484 WANOS - statutory (m) 2,439 2,597 2,662 2,693 2,721 NZ Banking WANOS - cash (m) 2,498 2,646 2,705 2,735 2,764 Net interest income 1,504 1,505 1,476 1,530 1,592 Other income PROFITABILITY RATIOS Total operating income 1,938 1,965 1,938 2,014 2,099 Y/e September e 2018e 2019e Operating expenses Return on assets 0.7% 0.7% 0.8% 0.8% 0.8% Impairment expenses Return on equity 14.8% 14.3% 13.6% 14.0% 14.1% Net profit before tax 1,048 1,072 1,026 1,073 1,127 Leverage ratio 5.2% 6.1% 6.1% 6.1% 6.1% Corporate tax expense Net interest margin 1.90% 1.88% 1.83% 1.84% 1.84% Minority interests Cost / income ratio 43% 43% 42% 41% 40% Investment experience Cost / average assets 0.76% 0.91% 0.93% 0.91% 0.88% NPAT (cash basis) Growth in operating income 2% 3% 1% 5% 5% Loans 61,909 70,619 70,315 73,127 76,053 Growth in operating expenses -8% 2% 0% 2% 3% Deposits 41,619 48,160 48,875 51,807 54,916 Jaws 10% 0% 1% 3% 3% Other IBL Effective tax rate 29% 28% 28% 28% 29% ASSET QUALITY Y/e September e 2018e 2019e Impairment expense / GLA 0.14% 0.15% 0.19% 0.20% 0.21% Impairment expense / RWA 0.19% 0.21% 0.26% 0.28% 0.30% Total provisions ($m) 4,165 3,523 3,689 3,878 4,082 Total provisions / RWA 1.04% 0.91% 0.90% 0.90% 0.90% Indiv ass prov / gross imp assets 33% 27% 27% 27% 27% IBL / IEA 103% 101% 101% 100% 100% Total provisions + GRCL / RWA 1.03% 0.89% 0.89% 0.88% 0.88% SOURCE: BELL POTTER SECURITIES ESTIMATES Page 7

8 Recommendation structure Buy: Expect >15% total return on a 12 month view. For stocks regarded as Speculative a return of >30% is expected. Research Team Staff Member TS Lim Sam Haddad John O Shea Title/Sector Head of Research Phone tslim shaddad joshea Hold: Expect total return between -5% Tim Piper tpiper and 15% on a 12 month view Jonathon Higgins jhiggins Sell: Expect <-5% total return on a 12 month view Chris Savage Jonathan Snape John Hester Healthcare csavage jsnape jhester Speculative Investments are either start-up enterprises with nil or only prospective operations or recently commenced operations with only forecast cash flows, or companies that have commenced operations or have been in operation for some time but have only forecast cash flows and/or a stressed balance sheet. Such investments may carry an Tanushree Jain Financials TS Lim Lafitani Sotiriou Resources Peter Arden David Coates Associates James Filius Healthcare/Biotech Banks/Regionals Diversified Resources Resources Associate Analyst tnjain tslim lsotiriou parden dcoates jfilius exceptionally high level of capital risk and volatility of returns. Bell Potter Securities Limited ACN Level 38, Aurora Place 88 Phillip Street, Sydney 2000 Telephone The following may affect your legal rights. Important Disclaimer: This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. In Hong Kong this research is being distributed by Bell Potter Securities (HK) Limited which is licensed and regulated by the Securities and Futures Commission, Hong Kong. This is general investment advice only and does not constitute personal advice to any person. Because this document has been prepared without consideration of any specific client s financial situation, particular needs and investment objectives ( relevant personal circumstances ), a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the representative of such licensee, who has provided you with this report by arraignment with Bell Potter Securities Limited) should be made aware of your relevant personal circumstances and consulted before any investment decision is made on the basis of this document. While this document is based on information from sources which are considered reliable, Bell Potter Securities Limited has not verified independently the information contained in the document and Bell Potter Securities Limited and its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility for updating any advice, views opinions, or recommendations contained in this document or for correcting any error or omission which may become apparent after the document has been issued. Except insofar as liability under any statute cannot be excluded. Bell Potter Securities Limited and its directors, employees and consultants do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this document or any other person. Disclosure of interest: Bell Potter Securities Limited, its employees, consultants and its associates within the meaning of Chapter 7 of the Corporations Law may receive commissions, underwriting and management fees from transactions involving securities referred to in this document (which its representatives may directly ) and may from time to time hold interests in the securities referred to in this document. Bell Potter Securities acted as Co-manager in the NAB Capital Notes 2 offer in May 2016 and received fees for that service. ANALYST CERTIFICATION Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner, including with respect to Bell Potter, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. Page 8