Westpac Banking Corporation first-half earnings preview

We examine some of the key things investors should be aware of before Westpac hands down its first-half results next week.

When will Westpac report its first-half results?

Westpac Banking Corporation (WBC) is set to report its latest round of H1 results next Monday, 4 May.

Westpac share price: a significant charge

Westpac gave investors a sneak peak into its first-half results yesterday, revealing a $2,236 million H1 impairment charge. These charges were made up of $600 million 'from individually assessed provisions and net write-offs' as well as $1,600 million in Covid-19 related ;collective overlays.’

Interestingly, the retail-inclined bank said 'While impairment provisions have begun to increase, the extent of additional charges in subsequent periods will depend on the severity and duration of the decline in economic activity and the size and effectiveness of stimulus measures.'

Factors, it should be pointed out, that remain highly uncertain.

The bank further noted that it expected its CET1 capital ratio to hit 10.8% at 31 March, 2020.

Key first-half expectations at a glance

In line with WBC's impairment charges, UBS is currently expecting Westpac's H1 profits (NPAT) to significantly decline on a year-over-year basis, to come in at $942 million.

Overall, in FY19 Westpac reported full-year profits of $6,784 million.

By comparison, Macquarie analysts expect Westpac’s H1 reported profits to come in at $1,044 million.

Interestingly, both Macquarie and Goldman Sachs analysts expect that unlike NAB, Westpac will not need to tap the market for fresh capital.

‘Given WBC’s pro-forma capital position of ~10.8%, we see a reduced risk of WBC raising capital via a placement at the 1H20 result,’ the investment bank’s analysts elaborated.

However, while Macquarie doesn’t expect WBC to raise fresh capital through an equity placement, it does expect the bank to pursue a fully underwritten dividend reinvestment plan at the H1.

Interim dividend expectations

In line with UBS’s earnings outlook, the investment bank’s analysts argued that it is likely that Westpac will defer its interim dividend.

‘We expect WBC to announce that it is deferring the decision on its dividend until the full-year result, when the outlook is clearer. This is consistent with APRA's guidance and helps strengthen its CET1 ratio.’

Goldman Sachs shared the UBS view, bluntly saying that it expects WBC to not declare an interim dividend, as a result of weakened H1 earnings estimates.

By comparison, Macquarie seemed the most optimistic of the bunch, arguing that WBC would declare a 30 cents per share interim dividend, so as to imply a dividend yield of just 2.0%.

For reference, in 2019 Westpac Banking Corporation paid out 174 cents in total dividends.

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