Westpac Banking Corporation

WBC Details

Investigation Ended Against WBC: Westpac Banking Corporation (ASX: WBC) provides a range of banking and financial services including consumer, business, and institutional banking and wealth management services. WBC’s operations consist of various divisions including Consumer, Business, Westpac Institutional Bank (WIB), and Westpac New Zealand. The bank had been charged with allegations by AUSTRAC in December 2019 for breach of anti-money laundering and counter-terrorism laws. As per the recent update on 12 March 2021, the Australian Prudential Regulation Authority (APRA) has called-off the investigation against WBC for the breach of Banking Act 1959 which will give a boost to the investor’s confidence.

Improvement in Asset Quality Across Sectors: WBC has reported lower stress among most of the sectors it is present in. Property and mining segments have witnessed higher stress, and every other sector has witnessed a lower stressed asset.

Improvement in Financial Performance: WBC has posted modest growth of 1% in net interest income to $4,247mn in 1QFY21 as compared with $4,210mn in 2HFY20 quarter but the net profit witnessed a significant growth to $1,704 mn from $550 mn during the same period on the back of lower expenses to $2,827mn in 1QFY21 against $3,270 mn in 2HFY20 quarter, a decline of 14%.

Financial Highlights (Source: Company Reports)

Outlook: WBC is expecting a robust economic performance, going forward. The bank has made lower credit loss provisions of $5,530mn in December 2020 as compared with $6,159mn in September 2020 on expectations of GDP growth at 4% in 2021.  

Valuation Methodology: P/E based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: In the last one month, WBC has increased by 9.98% and by 22.55% in the last three months. The market capitalisation of WBC stands at ~$89.99bn as of 12 March 2021. The stock is currently trading above the average 52-week price level range of $13.47-$25.30. On the technical analysis front, the stock has a support level of ~$24.22 and a resistance of ~$25.52. We have valued the stock using P/E multiple-based illustrative relative valuation method and arrived at a target price of low single-digit upside (in % terms). We believe that the bank can trade at a slight premium as compared to its peer average, considering modest outlook, decent performance in Q1FY21, and also taking into account that the bank has been commanding a premium in the past 3-years over its peer average. For this purpose, we have taken peers Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ). Considering a clarification from ARPA on investigations going against WBC, considerable market share in the banking industry in Australia, positive financial results in 1QFY21, valuation, and current trading level, we recommend a “Hold” rating on the stock at the current market price of $24.45, down by 0.327% as on 12 March 2021.

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

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