In today’s daily we have covered stock research on WESTPAC  BANK (SELL).









 
The S&P 500 was down by 5.11points or 0.25%on Tuesday to 2055.20 points.  The Dow and S&P 500 fell on Tuesday following concerns about global weakness and political turmoil, while the Nasdaq edged higher along with tech shares and energy. All three indexes pared losses after midday, with the S&P 500 cutting its decline in half. Apple shares were up 0.5 percent and among the biggest boosts to the S&P 500 and Nasdaq.

U.S. telecom stocks led losses on the S&P 500 following concerns about an industry price war after Verizon Communications warned that promotions in its wireless business would bite into its fourth-quarter profit. The S&P telecom index was down 3.2 percent while Verizon shares were down 4.2 percent, the biggest drag on both the Dow and S&P 500. Greece unnerved investors after the government brought a presidential vote forward in a political gamble that raised uncertainty over the country's transition out of its bailout.



APPLE Daily Chart (Source – Thomson Reuters)
S&P ASX 200was down by 90.0points or 1.68%on Tuesday and closed at 5282.7 points. Among  energy stocks, Senex plunged 17.2 per cent to 24¢, Drillsearch was down 10.4 per cent to 78¢, and Horizon Oil slid 8.1 per cent to 17¢. Qantas Airways, which has enjoyed a strong recovery following the collapse in the oil price, shed 0.4 per cent to $2.38. BHP shares dropped 4.05 per cent to a five-year low of $28.88. Rio Tinto dived 2.85 per cent to $55.50.
Australia and New Zealand Banking Groupdropped 1.6 per cent to $31.88, Westpac dipped 0.9 per cent to $33.06 and Commonwealth Bank of Australia dropped 0.45 per cent to $82.02. Transpacific Industries shares fell 2.2 per cent to 90¢ after news that the waste handler will incur up to $20 million in costs relating to the grounding of its trucks after a fatal accident involving a Transpacific tanker in August.

BHP Daily Chart (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-


 
Stock of the Day - Westpac Banking Corporation (SELL)

Westpac Banking Corporation (WBC), recently reported its full-year results for 2014 elucidating improved growth and increased return with all divisions executing well.


Financial Results (Source – Company Reports)

The Group states that its growth is at or above average in all key markets in 2H14. Further, WBC reported to achieve good returns on investments. For instance, Lloyds cash earnings rose up by 10% adjusting for 3 months ownership in 1H14. WIB Asia witnessed revenue increase of 43% (in USD) over year with over 100 new corporate/institutional connections, CNY derivatives license for G7 currencies, and preliminary approval for sub-branch in Shanghai Free Trade Zone. In Digital segment, there are 4m active digital customers with digital sessions on mobile up 11% points to 57%.


Growth in Exemplary Markets (Source – Company Reports)

For sustainable growth, the Group is putting efforts for service revolution by reinventing the customer experience, transforming distribution, simplifying the business, revolutionizing the working, etc.


Contribution from Business Units (Source – Company Reports)

WBC’s effective management of capital could result in cash EPS and cash earnings growth aligned. There were strong divisional contributions and risk disciplines. Lower Market risk related revenue, particularly impacted 2H14 result.


Cash Earnings and Cash EPS growth (Source – Company Reports)

For FY15, the Group aims to achieve good balance of strength, growth and return with expectation to have second half momentum in housing, household deposits, business and wealth across 2015; productivity benefits largely offsetting business as usual expenses; investment accounting for the majority of growth; strong balance sheet with leading asset quality, while impairment charges remain low; and good momentum in all divisions.


Key Statistics as per Division (Source – Company Reports)

FY14 outcomes have been strong with common equity tier 1 capital ratio at 9.0% and stable fund ratio at 83%. The Group further reports that BT total retail FUA growth is 1.1x. Mortgage growth has improved. Bank of Melbourne branches added 17 more branches, customers are up 16%, market share is up 30bps to 4.6x%, household deposits are up 30%, and mortgages are up 18%. BT Super for Life retail customers is up 18% and FUM is up 32%. General insurance gross written premiums and life insurance in-force premiums are up 11% and 16%, respectively. Further, trade finance revenue is up 94%. The recent Lloyds acquisition delivered $64m cash earnings while uplifting the Group’s Australian market share with 0.6% points in business lending and 2.3% points in personal lending.


Global Peer Comparison of Basel III Pro Forma CET1 Capital Ratios (Source – Company Reports)

WBC mentioned FY14 ordinary dividends of 182 cents, up 5% on FY13 - interim dividend of 90 cents and final dividend of 92 cents. The FY14 dividend yield is 5.7%. The net operating income is up 1% (up 5% FY14/FY13). The Group’s loans are up 3% (up 8% FY14/FY13). Further, customer deposits are up $20.4bn or 5% (up 7% FY14/FY13).

It is also noted that Australian Financial Services (AFS) represents 67% of Group’s cash earnings and all AFS businesses contributed to WBC’s performance. Net interest income is up $243m (5%), with improved balance sheet momentum. Expenses have also risen by $91m (3%), owing to investment in the businesses, compliance spend and technology costs. Moreover, impairment charges are up $11m (3%) with the overall improvement in the portfolio continuing.


Net Interest Margin Movement (Source – Company Reports)

The Group announced a 12% increase in statutory net profit to $7,561 million for the 12 months to 30 September 2014 (Full Year 2013 - $6,751 million).
However, the markets income is down 11% in view of difficult market conditions. Labor market has shown some signs of improvement. Interest rates are expected to remain low. Credit growth appears to gain momentum at a modest pace.

From management standpoint, retirement of Chief Executive Officer, Gail Kelly on 1 February 2015 comes as a blow. With regard to treasury earnings, it is also been noted that WBC’s 2H14 cash NPAT and EPS was, in general, short of forecasted value owing to weak margin and trading income. In spite of having a decent system mortgage growth, increased mortgage broker usage, expansion of Bank of Melbourne’s branches and results from Lloyds acquisition, WBC’s performance did see a slight dip. The NIM appears to be weaker than that of peers. With regards to the stand of Australian Prudential Authority (APRA) on the application of the D-SIB buffer, the possibility of WBC falling into the capital conservation buffer may end-up requiring APRA approval for distributions, which in turn may affect dividends and potentially hybrid distributions.


WBC Daily Chart (Source - Thomson Reuters)

Further, WBC is more likely to be affected due to its lower-than-peer leverage ratio and higher proportion of low-risk-weight mortgages in view of the Murray inquiry which is set to increase capital across the sector. Through introduction of macro-prudential moves, WBC’s position in NSW/Investor lending is also set to be challenged by the RBA.

Accordingly, we put a SELL recommendation for this stock at the current price of $33.06.


 
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