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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Where next for the Westpac share price following FY19 results?

Though the Westpac share price initially fell after reporting weaker FY19 cash earnings, lower net profits and a depressed final dividend; the stock has bounced back modestly since then.

The Westpac (ASX: WBC) share price crashed approximately 5% following the release of the bank’s FY19 results. In the days that followed however, the bank’s stock has stabilised somewhat and currently trades around the $27.30 per share mark.

Overall and for the full-year, Westpac reported significantly lower statutory net profits and cash earnings; while noting the bank would pursue a $2.5 billion capital raise to sure up its balance sheet.

Westpac share price: FY19 results at a glance

Many of Westpac’s key operational metrics fell during the 2019 fiscal year – as the impact of an ultra-low rate environment and the knock-on effect of Hayne’s Royal Commission into Australia’s financial sector continue to plague the big four’s earnings and outlooks.

With that in mind, it was hardly a surprise that Westpac’s statutory net profits dropped significantly during FY19 – for example – falling 16% to hit $6,784m. Cash earnings moved in step, dropping 15% to $6,849m. Adding to this, Westpac’s return on equity (ROE) also fell, hitting 10.75% for the full-year, down 225 basis points overall.

Dividend down

Yet maybe most worryingly – for income-oriented investors at least – was news that Westpac (ASX: WBC) would cut its final dividend by 15% – to 80 cents per share. For reference and prior to Monday’s results release, Westpac has consistently paid a dividend of 94 cents per share, since December 2015.

Commenting on this decision, Westpac’s CEO Mr Brian Hartzer said:

‘We felt it was necessary to bring the dividend payout ratio to a more sustainable medium-term range given the capital raising and lower return on equity.’

Westpac’s full-year results weren’t all bad news, mind you, as the bank reported that it currently meets APRA’s ‘unquestionably strong’ CET1 ratio; with the bank’s CET1 ratio currently standing at 10.7%.

In line with the firm’s current capital strategy, Westpac further noted during its results release that it was:

‘Seeking to raise approximately $2.5 billion in capital which on a pro-forma basis is expected to increase our 30 September 2019 CET1 capital ratio by ~58 bps.’

Westpac announced the successful completion of this capital raise yesterday, which will result in the issue of 79 million new shares.

The bank pointed out that:

'The New Shares issued under the Placement will not be entitled to receive the 2019 final dividend of 80 cents per share.’

Westpac share price: what’s the outlook?

In response to the bank’s FY19 results, UBS formed a decisively negative view. Here, UBS maintained their sell recommendation and hit the bank with a $24.50 12-month share price target.

Though UBS sees Westpac’s dividend reduction and now-completed capital raise as key positives – insofar that they strengthen the bank’s balance sheet – the investment bank lowered their EPS outlook for Westpac and noted that flat lending, higher costs and further remediation charges remained as key issues/ points of uncertainty for the big four bank.

Macquarie was somewhat more optimistic in response to Westpac’s FY19 results, maintaining a neutral rating and a price target of $26.50 per share.

Like UBS, Macquarie downgraded their EPS outlook for Westpac (ASX: WBC), and warned that they expected earnings to come in lower during FY20 and FY21.

Practise trading Australian bank stocks with an IG demo account now

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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