Westpac comes full circle - what now?

James Gerrish

Market Matters

I covered Westpac (WBC) a year ago almost to the day on this forum (click here to view) with the conclusion being: The case to buy banks into current weakness with a medium-term mindset in my view is strong. For WBC, a recovery back to $25 has every chance, which is a +60% gain from current levels.

The stock has hit that level today with the result this morning a strong one with the following metrics:

  • Cash earnings $3.5b v 3.42b expected
  • Cash Earnings per share (EPS) 97.1c v 93c expected
  • Dividend per share 58c v 54c expected
  • Net Interest Margin (NIM) 2.09% up 2bp to 2.09% v 2.03% expected
  • Tier 1 Capital 12.34% (incredibly strong

One very positive aspect (in my mind at least) from this mornings update was WBC transitioning to a more sustainable dividend payout ratio of 60-65% of earnings. This creates a more sustainable footing for the bank to invest, innovate and ultimately grow. 

As a leveraged play on the domestic economy improving we remain positive the banks in the medium term, although from a tactical shorter-term perspective our preference is for a period of weakness in May/June. 

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Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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