WBC Details

Conclusion of AUSTRAC Proceedings: Westpac Banking Corporation (ASX: WBC) provides banking, financial and related services. The market capitalisation of the bank stood at ~$71.75 billion as on 24^th December 2020. Recently, the bank informed the market with the update on AUSTRAC proceedings, which commenced on 20^th November 2019. The company stated that ASIC has concluded the investigation and has decided not to take any enforcement action against Westpac or any individuals in connection with the investigation. Also, the bank has agreed with IOOF to conclude its ten-year shared Master Relationship Agreement, which became effective from 17^th December 2020. This decision of the bank indicates its strategy to simplify its business and exit complex arrangements.

Sale of Pacific Businesses: In order to focus on the consumer, business and institutional banking in Australia and New Zealand, WBC announced the sales of its Pacific businesses, Westpac Fiji and its 89.91% interest in Westpac Bank PNG Limited to Kina Securities Limited for consideration of up to $420 million.

Financial Highlights: During FY20, the bank witnessed a fall of 66% in statutory net profit to $2,290 million, primarily due to higher impairment charges, increased notable items and a sharp fall in economic activity. Low-interest rates and a highly competitive market resulted in the fall of net interest margin (NIM) to 2.03x in 2H FY20 as compared to 2.13x in 1H FY20. During the year, the bank also made higher expenses because of the increased resourcing to handle unprecedented COVID-19 demands and fixing its compliance issues.

Key Financials (Source: Company Reports)

Outlook: With the focus on three priorities fix, simplify and perform, the bank is aiming to become a simpler and stronger bank. The bank would also focus on its core consumer, business and institutional segments.

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: At the end of FY20, the bank reported Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) of 151% and 121.7%, respectively.  As on 30^th September 2020, the bank reported a CET1 ratio of 11.13%, reflecting a rise of 32 basis points over 31^st March 2020. On a technical front, the stock of WBC has a support level of ~$17.189 and resistance level of ~$21.113. We have valued the stock using the price to book value multiple based illustrative relative valuation and have arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the favourable judgement in AUSTRAC matter, growth in CET1, decent liquidity and funding, we give a “Buy” recommendation on the stock at the current market price of $19.550 per share down by 0.052% on 24^th December 2020.

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

Woodside Petroleum Ltd

WPL Details

Acquisition of Sangomar: Woodside Petroleum Ltd (ASX: WPL) is engaged in the management and operation of hydrocarbon. The market capitalisation of the company stood at ~$21.71 billion as on 24^th December 2020. The company recently noted that the North West Shelf (NWS) Project participants (Woodside Energy Ltd operates 16.67%) have executed fully termed gas processing agreements (GPAs) for processing third-party gas via NWS Project facilities with Woodside Burrup Pty Ltd. On 23^rd December 2020, the company stated that Woodside Energy (Senegal) B.V. has finished the acquisition of whole participating interest of Capricorn Senegal Limited in Rufisque Offshore, Sangomar Offshore and Sangomar Deep Offshore (RSSD) joint venture. The company paid a purchase price of US$300 million plus a working capital adjustment of around US$225 million.

Financial Highlights: For the quarter ended 30^th September 2020 (Q3 FY20), the company recorded production of 25.3 MMboe, reflecting a rise of 2% from Q3 FY19 and sales volume for the quarter stood at 26.7 MMboe, up by 10% from Q3 FY19. During 1H FY20, the company reported production and operating revenue of 50.1 MMboe and $1,907 million, respectively. On a reported basis, net loss after tax for the half-year amounted to US$4,067 million, primarily because of the impairment losses and onerous contract provision, which was announced on 14 July 2020.

Production (Source: Company Reports)

Guidance: For FY20, the company expects production in the range of 97 – 103MMboe. In addition, the company anticipates total expenditure of around US$2,400 million and investment expenditure in the ambit of US$1,500 – US$1,700 million. The company is likely to release its FY20 results on 18^th February 2021.

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

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

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

Stock Recommendation: During 1H FY20, the company reported cash flow of $1,107 million from operating activities and closed the half-year with the liquidity of $7,552 million. On a technical front, the stock has a support level of ~$16.720 and a resistance level of ~$23.704. The stock is currently trading lower than the average 52-weeks price level band, offering a decent opportunity for accumulation. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Santos Ltd (ASX: STO), Oil Search Ltd (ASX: OSH), and Senex Energy Ltd (ASX: SXY). Thus, considering the recent acquisition of Sangomar, rising production and sales volume, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $22.750 per share, up by 0.797% on 24^th December 2020.

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

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