buy or sell, page-7

re: buy or sell... ubs view ++++++++++++++++++++++++++++++++++
UBS said NAB is a "big turnaround story" with room for upside as it goes through 2004. "We believe we have been conservative in pricing the numerous NAB investment risks and provide a detailed assessment within," it said. "We view our earnings estimates and valuations as having built in substantial downside risk." UBS said its 2005 EPS forecast of $2.45 is conservative as it builds in a 20 per cent fall in 2004 wholesale bank net profit, flat 2004 domestic retail bank net profit and halving of UK net profit (between 2003 and 2006). The broker said its UK forecasts assume a drop in return on equity to 13 per cent from 27 per cent and a halving of earnings (albeit with a large drag from capital expenditure, pension amortisation and currency). UBS said NAB's balance sheet includes a number of "soft items" which shall be reviewed during the second-half of fiscal 2004, once a new CFO is appointed. The broker believes it would be prudent for NAB's new management team to maximise write-off levels, given this would improve future earnings. It expects NAB could take around $2.5 billion after tax in write-offs and provision top-ups to improve its balance sheet and this would deliver a $307 million increase in 2005 cash net profit (8 per cent of group net profit). NAB shares were down 12¢ at $29.24 after losing 95¢ in the previous four trading days.