NAB – Morgan Stanley rates as Underweight

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Upon further analysis, Morgan Stanley believes management can deliver on its cost targets while keeping loan loss rates below peers in Australia. However, the analysts also see earnings risks and this leads to the conclusion that "too much optimism" is surrounding the share price.

Morgan Stanley believes the pay out ratio is likely heading higher in the years ahead, even with NAB likely to keep the dividend unchanged. An elevated pay out ratio increases the chance for an eventual dividend cut.

Underweight rating retained. Price target has lifted to $28.20 from $27.70. The broker’s base line assumption is that shareholders will receive 198c in dividends for as long as the eye can see.

Sector: Banks.

Target price is $28.20.Current Price is $29.37. Difference: ($1.17) – (brackets indicate current price is over target). If NAB meets the Morgan Stanley target it will return approximately -4% (excluding dividends, fees and charges – negative figures indicate an expected loss).

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