Westpac Banking Corporation (WBC)
BUY

Visible Improvement

 8 May 2023
Sector: Financials

1H23 RESULT

Need To Know

  • NPAT+2% ahead, DPS 1cps ahead of market
  • Strong cost and ROE performance. Visible improvement under new CEO Peter King
  • Industry margin pressures evident. Expect low-single digit consensus EPS downgrades 

Operating improvement evident. Capital levels imply potential for share buybacks. NIM pressured, although March exit margin held up better than peers. 

Rev $11.0bn vs $11.0bn market

Underlying Profit $5.9bn vs $5.9bn market

BDD: $0.2bn vs $0.5bn market

NPAT: $4.0bn vs $3.9bn market

EPS $1.14 vs $1.09 market

DPS $0.70 vs $0.69 market.    

Net Interest Margin (NIM) 1.90% vs market 1.96%.  2Q23 exit margin 1.88% vs market at 1.95% for FY23E/FY24E. 

CET1 12.3% vs 11.3% pcp, target range 11-11.50%

A welcome operating improvement for WBC. Capital levels imply the potential for share buybacks. NIM pressured, although the March exit margin held up better than peers. 

Investment View

WBC’s capital position remains very strong at 12.3%, well clear of the 11.5% target, which suggests capital management is a distinct prospect at FY23 results in November 2023 (dependent on economic performance and realised bad debts over the next six months, in our view).

We expect low single-digit earnings downgrades given by a soft NIM outlook, with some offset from lower near-term bad debts.

WBC (and ANZ) valuations are the cheapest of the majors at 10x PER, with a dividend yield of >6%, grossing up to 9% fully franked, which should provide some support to the WBC share price.  

WBC’s operating cadence is returning. Whilst the removal of the cost target in just 6 months is frustrating, WBC was A) the only bank with an explicit target; and B) investors did not believe the bank. Retain Buy Rating on WBC.

Figure 1: WBC dividend yield remains equal highest in sector with ANZ. A share buyback is a real possibility in late 2023

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Stock Overview

Share Price

Company Overview

WBC is an Australian bank that offers consumer, business, institutional banking and wealth management services. It operates in four segments: Consumer, Business, Westpac Institutional Bank, and Westpac New Zealand.

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