What the analysts are saying: more bouquets for NAB

Macquarie Securities is the second equity researcher in as many weeks to upgrade National Australia Bank. Its change has been prompted by a positive view on the changes the bank is making to its United Kingdom operations and the fact that NAB has been the most aggressive among the big four banks in re-pricing its mortgages and business loans this year.

Macquarie upgraded NAB to Outperform, with a 12-month price target of A$27.66 (compared with Friday's close of $23.78).

Last week The Bank Investor reported that Citi had changed its recommendation on NAB, calling the stock a Buy based on its share price underperformance compared with its big bank peers. NAB stock has traded about six per cent below its peers this year.

In a note to clients, Citi said: "We believe that with NAB's strengthened capital levels and continued modest asset growth, current dividend levels appear to be sustainable."

Macquarie said: "We believe there is much negativity priced into NAB at current levels but also many reasons to believe the future is brighter for NAB relative to peers."

Macquarie said NAB had made a good decision to "right size" its UK business.

It said NAB's re-pricing strategy in the Australian market showed it had "the most comprehensive set of levers" relative to peers to counteract rising funding costs. It has revised its earnings forecasts for the 2011/12 and 2012/13 financial years based on the expectation of higher margins.

Macquarie was also encouraged by recent data showing a recovery in business lending. Its view is that NAB, which is the dominant business bank, is in a better position than the other big banks to capitalise on renewed demand for business credit.