Westpac share price surges following Q1 update, where next?

‘The better revenue and capital should be well received by the market,’ according to one broker.

Westpac share price climbs on Q1 update

Investors bid Westpac Banking Corporation (WBC) share price higher after the bank released its first quarter trading update to the market, on Wednesday, 17 February.

A little before noon, WBC was up 5.31% to $23.70 per share. The bank has been in a solid uptrend over the last six months, rising over 30% in that period, solidly outperforming the ASX 200 benchmark in the process.

This has coincided with a more rosy economic outlook, though low interest rates remains a key overhang for the banks. Despite those headwinds, WBC did indeed report a robust set of quarterly numbers as part of Wednesday’s trading update.

Everything you need to know about the update

From an earnings perspective, Westpac reported a quarterly statutory net profit of $1.70 billion; against unaudited cash earnings of $1.97 billion, representing an impressive 54% increase on an ex notable items basis. Core earnings gained 28%. The bank attributed this performance to higher margins and 'lower expenses from the phasing of investment spend and an impairment benefit.'

Indeed, margins did expand during the quarter, with Westpac's net interest margins (NIMs) rising 3 basis points, to 2.06%.

Commenting on this margin performance, analysts from Ord Minnett argued that it ‘reflects WBC’s larger-than-peer repricing of deposits over the last six months, assisted by absence of growth in the loan book.’

Ord Minnett has a hold rating and $22.40 price target on WBC but nonetheless said that: ‘The better revenue and capital should be well received by the market.’

Elsewhere, the bank has maintained a strong capital position, reporting a CET1 ratio of 11.9% -- firmly ahead of APRA's 'unquestionably strong' capital requirements.

As with NAB this week, Westpac also provided the market with an update on the health of its loan book. On this front, the bank said that some $11 billion worth of Australian mortgages remained in a state of deferral, while only $400 million worth of small business loans remained in a state of deferral.

Where next?

Commenting on Australia’s economic outlook, Westpac's CEO, Peter King, said:

'While uncertainty remains around the impact of local COVID outbreaks, there is cause for optimism. The economy is recovery, consumer and business confidence is strong, and the about market has been much more resilient than expect.'

Talking specifically to WBC’s mortgage book, Mr King added that:

'We are also beginning to improve momentum in mortgages and while the book was little changed over the half, we have processed a significant increase in applications. Low interest rates, rising house prices, new construction, and high consumer confidence all point to continued recovery in home lending activity in 2021.'

WBC closed out Wednesday's session at $23.54.

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