This report is the updated version of the report uploaded on 3 Feb 2024 at 3:26 AM GMT +13

Westpac Banking Corporation

WBC Details

Westpac Banking Corporation (NZX: WBC) provides various banking and financial services in Australia, New Zealand, and internationally.

Financial Results for the year ending 30 Sep’23

• The Group recorded a net profit of $7,195 million, up 26% on the prior year. Excluding one-off items, net profit increased 12% to $7,368 million.
• Dividends of 142 cents per share, including a final dividend of 72 cents per share, were up 14%.
• With $4 billion of capital above the target operating range and confidence in medium term economic outlook, $1.5 billion on market share buyback to return capital to shareholders.
• The margins rose 2 basis points and have been well-managed through the period of intense mortgage competition.
• Net interest income rose by 7% to $18,317 Mn and group net interest margin (or NIM) rose 2 basis points to 1.95%. The core NIM (excluding Notable Items, Treasury and Markets) expanded by 12 bps to 1.87% from the higher return on capital balances as well as increased deposit spreads.

Key Updates

The group did on market buy-back, total number of securities bought back on previous day was 697,218.

Outlook

The Group expects annual output growth earlier edged down to 1.0% for June 2024, to 1.6% for December 2024. The economic slowdown is centred on consumer spending and the interest rate sensitive housing sector. The H2 FY 2023 presented more challenging environment for WBC as well as the broader industry. This is expected to continue into 2024. The company has restructured its divisions to focus towards growth, returns and improving customer service while rebalancing investment between risk, growth and productivity to support the strategy.

The households were squeezed by cost-of-living pressures and higher interest rates. This means that some have had to adjust spending to keep up.

The consumer sentiment is weak but there are glimmers of hope as cost pressures are now starting to ease for the businesses.

Key Risks

The Group is exposed to regulatory, economic, geopolitical, and technological changes, these changes may have an adverse impact on the group’s strategy.

Fundamental Valuation

Price/BVPS Based Relative Valuation

Stock Recommendation

Since our last recommendation, the stock has given a return of ~14%. The stock has made a 52-week low and high of NZD 22.15 and NZD 26.35, respectively. The group’s performance is exposed to the risks related to the global slowdown as well as geopolitical tensions. The group may further face challenges related to trade tensions, tariffs sanctions, social disruption.

Looking ahead, there are some uncertainties regarding the economic outlook. While the inflation is coming down, challenges are still there, including volatile energy prices as well as geopolitical uncertainty because of conflict in Europe and the Middle East.

Hence, a ‘Sell’ rating has been provided on the stock at the closing price of NZD 25.90 per share, up by 2.29% as on 2 February 2024.

Technical Overview:

Daily Price Chart

WBC  Daily Technical Chart, Data Source: REFINITIV

Disclaimer: Kalkine New Zealand Limited’s (Kalkine) Director Kunal Sawhney owns shares of Westpac Banking Corporation since December 2021. Kalkine has recommended Westpac Banking Corporation in its report as general advice only (under FSP Number FSP691351).

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for share price chart and stock valuation is based on 2 February 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Disclaimer

Kalkine New Zealand Limited is a Financial Advice Provider (“FAP”) and is authorised by a Class 1 Financial Advice Provider Licence issued by Financial Markets Authority (“FMA”) to provide financial advice. Kalkine provides only general financial advice through its research reports following a person becoming a member. The reports contain buy/sell/hold and other recommendations in relation to equity financial products. The recommendations and opinions [on this website] / [in this report] do not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions. If you act on the advice in the research reports, you may have to pay fees, expenses or other amounts (but not to Kalkine).  Further information about the complaints and dispute resolution process, as well as information about Kalkine’s duties are available on Kalkine’s website.  Please read our Financial Advice Provider (FAP) disclosure statement and Complaints Handling Guide, which are available on the website.