Mixed results from Westpac

Westpac reported an 8% rise in its full-year cash earnings to $7.097 billion, which was marginally better than forecasted.

WBC's dividend of 88c was an increase of 4% and in-line with consensus, while the 10c special dividend was not surprising either.

Perhaps shareholders could be a little disappointed by the overall quality, with pre-provision operating profit 1% weaker than many had expected. Costs seem to be the main culprit here, with 2H cost growth up 5% year-on-year. Margins were down two basis points on the year and were a touch below expectations, although the market doesn’t seem overly concerned by this given the stock is 0.3% higher at the time of writing (10:24 AEDST).

On the plus side, return on equity at 16% is higher than ANZ and shows greater efficiencies to extract earnings from shareholder capital. There were good improvements in asset quality as well, while the bank’s capital position is the best in its sector. Earnings in its wealth management division were solid as well, up 9% half-on-half.

On the negative side, cost growth, weak earnings momentum and weaker-than-forecasted net interest margins have been talked about on the floors today. The stock is trading on 15x 2014 earnings so it’s hard to see strong upside, given it is trading on 5% premium to its peer group. If global markets continue their steady rise then we can see PE expansion; although it’s hard to see strong upside to earnings from here.

Overall the result looks OK, but is not going to shoot the lights out and is unlikely to cause a rotation out of other bank stocks. 

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