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FY2014 cash earnings have increased 8% to A$7.628 billion, with analysts expecting A$7.623 billion. A slight miss on the revenues was offset by a strong improvement in bad and doubtful debts, while we also saw a slightly more favourable tax rate.
Net interest margins declined as expected, while its 2H dividend of A92.0c was in line with forecasts and maintains a healthy 74% payout ratio. Management have increased guidance around common equity and now target a range (on the CET1 metric) of 8.75% to 9.25% (from 8.5% to 9%), which should appease some who had been suggesting the banks need to increase capital levels. There was also reasonable lending balance momentum and this should spill into 2015.
Overall this is a good result, but given the stock had outperformed the other banks this year by some margin, so much of the improvement seems in the price.
Technically, the stock looks overbought and I am keeping an eye on the stochastic on the daily chart, which looks like it wants to roll over. The 14-day RSI failed to print a higher high as well, so there are signs we could see negative divergence take hold. Still, with volatility subdued and falling (due to central bank actions), the market will continue to buy banks on any pullbacks. As long as the 29 October low of A$34.10 holds, I would hold an optimistic bias on Westpac.