This report is an updated version of the report published on 14 June 2022 at 3:16 PM (GMT +10)

Westpac Banking Corporation

WBC Details

Westpac Banking Corporation (ASX: WBC) is one of four major banking organizations in Australia and one of the largest banks in New Zealand. The company offers consumer, business, institutional banking, and wealth management services.

Results Performance for the Half Year Ended 31 March 2022 (H1FY22)

• Net profit attributable to owners of WBC stood at $3,280 million in H1FY22, down 5% YoY, primarily due to a $511 million ($358 million after-tax) turnaround in impairment charges in H1FY22.
• Profit before impairment charges and income tax expense in H1FY22 was 4% above H1FY21 from a 10% decrease in expenses partly offset by 4% lower operating revenue.
• Net interest income stood at $8,288 million in H1FY22, down 3% YoY.

Source: Company Reports, Analysis by Kalkine Group

Key Update:

• On 10 June 2022, the company advised that it is considering a new Westpac Capital Notes offer depending on market conditions and regulatory and other approvals.
• On 26 May 2022, the company and BT Funds Management Limited (Trustee) have advised that they entered into a Heads of Agreement to merge, through a successor fund transfer (SFT), BT’s personal and corporate superannuation funds with Mercer Super Trust.
• On 26 May 2022, the company announced that it entered into a contract to sell its Advance Asset Management business (Advance) to Mercer Australia.

Outlook:

The company anticipates the Australian economy to grow by 4.5% in 2022 but 2.5% in 2023. Credit growth is expected to be 5.7% in 2022 and 4.3% in 2023. Demand for housing indicates signs of easing, and rising interest rates are projected to cool down the house prices next year. Further, the company would continue to offer Fix, Simplify and Perform priorities. The CORE focus will be on delivering on plans and improving risk management capability. Meanwhile, the portfolio simplification process contributes to the aim of the company. Digitization will be the critical element in improving customer journeys, customer service, customer growth in core markets and resetting the cost base.

Key Risks:

The financial condition and operating results of the Group are affected by the number of critical financial and non-financial risks. Financial risks include market risk, credit risk, financing, and liquidity risk. The non-financial risks include insurance risk, compliance risk, and operational risk.

Valuation Methodology: Price/Book Value Per Share Multiple Based Relative Valuation (Illustrative)

Technical Overview

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation:

The stock has been valued using a P/B multiple-based illustrative relative valuation, and a target price so arrived reflects a rise of low double-digit (in % terms). In addition, a slight premium has been applied to P/B Multiple (NTM) (Peer Average), considering decent outlook and expectation of growth in financial market.

Considering the aforementioned factors, the current trading levels, we give a “Buy” recommendation on the stock at the current market price of $19.34 per share as of 14 June 2022 (Time: 10:34 AM (GMT+10), Sydney, Australia).

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

Westpac Banking Corporation (WBC) is a part of Kalkine’s Global Big Money Product

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.