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.
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.
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