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Westpac share price: what 2 top brokers think of the bank

We take a look back at the bank’s FY20 results as well as how two of Australia’s top brokers initially responded to those results.

Financial stocks were some of the worst hit as a result of the coronavirus pandemic, plunging to long-unseen depths during the height of the March sell-off. Historically low interest rates haven’t helped matters, nor prudent updated regulatory guidelines in the face of the pandemic.

All of this culminated in the Westpac Banking Corporation (WBC) share price hitting a 52-week low of $13.47 per share in March. Though the stock has since recovered, the operating environment remains challenging for Westpac and companies in the broader financial complex.

Overall, fiscal 2020 was a difficult year for Westpac, with profits, earnings and dividends all taking a significant hit. Looking at the broad strokes of the bank’s annual report, in 2020 WBC reported:

  • Net profits of $2,290 million, down 66%, and cash earnings of $2,608 million, down 62%
  • Net interest margins (NIMs) of 2.08%, down 4 basis points
  • ROE of 3.83% and a CET1 ratio of 11.13%
  • A final dividend of 31 cents per share

Despite those results, Westpac’s CEO, Peter King, optimistically said at the time, that:

'We remain in an uncertain economic environment, however the recent budget has provided significant stimulus to businesses and households. Our economists expect at least half the personal tax cuts will be spent and businesses will respond to the generous depreciation allowances.'

Westpac share price: How two top brokers reacted to those results

Despite a difficult year, both Bell Potter and Macquarie Wealth Management remain constructive on WBC.

In early November, analysts from Macquarie Wealth Management noted that Westpac's valuation at the time incorporated 'a challenging outlook' for financials, further adding that ‘pre-provision downgrades’ may result in short-term share price weakness.

So far, that short-term weakness hasn’t arrived, with Westpac rallying some 13% over the last month, as investors grow increasingly optimistic about a re-opened economy as a result of recent news concerning an effective COVID-19 vaccine(s).

Indeed, as Macquarie analysts noted:

‘In the longer term, while fundamental value has diminished on the back of today’s result, we continue to see relative valuation upside in WBC vs peers.’

The investment bank has a 12-month price target of $18.00 per share and an Outperform rating on WBC.

By comparison, Bell Potter analysts appear somewhat more optimistic of Westpac's outlook, at least from a share price perspective, assigning the bank a 12-month price target of $19.60. In saying that, Bells has a Neutral rating on the retail-focused bank, opposed to Macquarie’s Outperform rating.

Indeed, that price target was actually lowered from Bells’ previous price target of $20.00 per share.

‘The revisions are mainly due to lower non-interest income (ongoing pressure as per the FY21 outlook) and elevated operating expenses, net of a better NIM outlook in the medium term,’ the broker said in a note to clients.

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The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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