Westpac share price: Why UBS has a ‘Buy’ rating on the bank

In this ‘quick take’ we look at how Westpac’s stock has performed over the last five trading sessions and why UBS remains constructive on the beleaguered bank.

Quick take: Why UBS has a ‘Buy’ rating on Westpac

The Westpac Banking Corporation (ASX: WBC) has seen its share price struggle over the last five sessions – dipping over 3.5% in that period, to last trade at $17.32 per share.

This comes after the retail-focused bank reported a weak set of full-year FY20 results on Monday, October 2 – revealing lower profits, a weaker dividend, and noting that close to $17 billion worth of its mortgage accounts were currently in a state of deferral.

Read our full coverage of Westpac’s FY20 results here.

UBS analysts agreed that these full-year results were lacklustre, to say the least – describing them as ‘annus horribilis’, literally, in Latin translating to a ‘horrible year’. Despite that, the Swiss investment bank retained its Buy rating and 12-month price target of $20.50 per share on Westpac – implying modest potential upside from current price levels.

The investment bank looks to have remained constructive on WBC for two main reasons:

  1. On valuation grounds, with UBS analysts noting that WBC, at current price levels trades at just 0.9x FY21e book value – the equal second lowest in the investment bank’s Big Four coverage universe.
  2. As an extension of this humble valuation and according to UBS, the share price performance of Westpac ‘is likely to be driven by the economic outlook, expectations around asset quality and potentially higher dividends in coming periods. Given the improving economic outlook, we expect WBC to continue to re-rate.’

Of course, UBS is not oblivious to the headwinds that Westpac and indeed Australia’s entire banking complex currently faces – noting that these broad issues are expected to persist over the short-term. This, says UBS, in the short-term may lead to persistently weak lending volume growth, net interest margins (NIMS) remaining under pressure and expenses staying elevated.

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