Westpac Banking Corporation

WBC Details

Westpac and AUSTRAC Reach Agreement on AML/CTF Proceedings: Westpac Banking Corporation (ASX: WBC) provides banking and financial services, including payment services, interest rate risk management, lending, deposit taking, etc. As on 24 September 2020, the market capitalization of the company stood at ~$59.2 billion. The bank has reached an agreement with AUSTRAC to resolve the civil proceedings, under which it will pay a civil penalty of $1.3 billion with respect to the admitted contraventions of the Anti-Money Laundering and Counter-Terrorism and Financing Act 2006. The company has acknowledged the additional contraventions that are outlined in the amended statement of claim and had a correspondent banking relationship with several banks.

Financial Highlights (For the Period ended 30 June 2020): For the quarter ended 30 June 2020, the company reported Tier 1 capital ratio of 12.86% and APRA leverage ratio of 5.88%. The ratio of RWA to Exposure at Default went up by 1.4% since March 2020 to 38.4%

Key Capital Ratios (Source: Company Reports)

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Price to Book Value Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The bank is ensuring to be well-capitalized during all times and is evaluates its approach to capital management through an Internal Capital Adequacy Assessment Process. The Annual General Meeting of the bank will be held on 11 December 2020. As per ASX, the stock of WBC gave a return of 16.24% in the past six months and is trading close to its 52-weeks’ low level of $13.470. On a technical front, the stock of WBC has a support level of ~$14.56 and a resistance level of ~$19.34. We have valued the stock using the price to book value multiple based illustrative relative valuation and have arrived at a target price of higher single-digit (in percentage terms). For the said purposes, we have considered National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANX), Bank of Queensland Ltd (ASX: BOQ), etc., as peers. Considering the current trading levels, decent returns in the past six months and valuation, we recommend a ‘Hold’ rating on the stock at the current market price of $16.37, down by 0.122% on 24 September 2020.

WBC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Coles Group Limited

COL Details

Strengthened Balance Sheet: Coles Group Limited (ASX: COL) is an Australian retailer of products such as fresh food, groceries, household goods, liquor, fuel, and financial services via stores and online. As on 24 September 2020, the market capitalization of the company stood at ~$23.5 billion. During FY20, the company realized decent results with a growth of 6.9% in sales, however, it saw a decline of 2% in total sales revenue to $37,408 million. In the same time span, earnings before interest and tax went up by 20.1% to $1,762 million and NPAT stood at $978 million. COL strengthened its financial position by extending the term of its debt maturity with a net debt balance of $362 million, reflecting a reduction of 30% on the prior year. The decent financial and operational performance enabled the Board to declare a fully franked final dividend of 27.5 cents per share, taking the full year dividend to 57.5 cents per share. This reflects a dividend payout of ~82% of after tax profit.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company has demonstrated resilience to the ongoing challenges and has doubled its capacity online. The company has new transport hubs to optimise logistics and is progressing with Witron & Ocado automation. COL is prioristising growth in the online and is focused on delivering long-term sustainable returns for its shareholders.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: COL is executing its refreshed strategy to transform its business and lay the foundations for long-term sustainable growth. As per ASX, the stock of COL gave a return of 13.09% in the past six months and a return of 5.7% in the past three months. The stock of COL is inclined towards its 52-weeks’ high level of $19.260. On a technical front, the stock of COL has a support level of ~$15.26 and a resistance level of ~$18.89. We have valued the stock using the EV/EBITDA multiple based relative valuation and have arrived at an upside of higher single-digit (in % terms). For the said purposes, we have considered Metcash Ltd (ASX: MTS), Harvey Norman Holdings Ltd (ASX: HVN), Super Retail Group Ltd (ASX: SUL), etc as peers. Considering the current trading levels, decent returns in the past six months and modest long-term outlook, we recommend a ‘Hold’ rating on the stock at the current market price of $17.52, down by 0.568% on 24 September 2020.

COL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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