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Is the NAB (ASX:NAB) share price an opportunity?

Could the National Australia Bank Ltd (ASX: NAB) share price be an opportunity?

It’s had a strong run in the shorter-term. In the last six months, NAB shares have risen by 10% and over the last year it has risen 56%.

But could there be more to come? No-one can truly know what share prices are going to do next. However, I’ll share my thoughts on the bank.

Latest update

The big ASX bank announced that in its third quarter it generated $1.65 billion of statutory net profit and $1.7 billion of cash earnings.

NAB said that cash earnings were 10.3% higher compared to the third quarter of FY20. This was helped by “significantly better” credit impairment outcomes.

It pointed to a pleasing performance with momentum across its business. In Australia, housing lending grew by 2% and small and medium (SME) business lending grew 4.3% – both of these metrics outperformed the broader loan market in recent months.

In New Zealand there was also good growth, with lending growth of 2.7%.

NAB said that its common equity tier 1 (CET1) ratio was 12.6%. This is comfortably higher than APRA’s ‘unquestionably strong’ benchmark.

What could this mean for the NAB share price?

NAB is still seeing profit rise compared to 12 months ago during the difficult period of COVID-19.

But quarter on quarter profit growth is now coming to a standstill.

It was the loan impairment charges that made huge dents in bank profits in FY20 and the non-repeating of that (and small credit provision releases) are now helping bank profit comparisons.

But I’m not seeing much underlying growth. The net interest margin (NIM) continues to be pressured by large amounts of competition in the banking (and non-banking) world.

These lockdowns in Sydney and Melbourne, for NAB, aren’t good news. It raises the potential of bad debts and limits lending activity.

Is the NAB share price good value?

It has a really good leadership team in place. Its balance sheet is in great shape. NAB is seemingly back on its way to paying good dividends. Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) are all expected to pay big dividends in FY21.

I just don’t think NAB represents compelling long-term value at these levels. It may be okay for dividend income, but over time it’s likely to be those smaller businesses that generate more growth and bigger returns.

Looking at CommSec data, the NAB share price is valued at 14 times the estimated earnings for the 2022 financial year.

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