Westpac Bank reports better than expected interim results

<p>Westpac Bank’s first half cash earnings of $3.195bn is slightly better than market expectations – though only slightly – but more importantly it probably means […]</p>

Westpac Bank’s first half cash earnings of $3.195bn is slightly better than market expectations – though only slightly – but more importantly it probably means full year earnings estimates by the market don’t need to be hosed down further, as they were after the first quarter result.

The numbers imply an improvement in the second quarter by around $145m in cash earnings which is higher than ANZ Bank’s second quarter earnings gains reported yesterday. Fully franked dividends of 82 cents per share are also slightly above market expectations.

Returns on equity are still above 15% which is in line with where ANZ stands. Yesterday, we said it is probably best to sell out of ANZ and buy some Westpac and we feel on these numbers, that trading strategy is probably one which will pay off today.

Under the bonnet, customer deposits were 11% higher which is important for funding security. The rate of deposit growth has outstripped lending growth of only 5% but it hasn’t come at a huge cost to net interest margins, which shed 4 basis points compared to the same period last year.

Mortgage arrears are in line with September levels and down on the same period last year, impaired assets are also improving so asset quality isn’t an issue for now and last week’s 50 basis point RBA cut will help further.

Bottom line: A lot has been said about the Australian banks and how vulnerable they might be in the current market climate, but what today’s scorecard from Westpac shows is an ability to grow earnings, manage margin pressure and maintain loan quality in very tough economic conditions.

Returns on equity are still better than regional peers and the 82 cent per share dividend represents a yield of 3.6% on yesterday’s closing price and that’s just for six months – not bad given falling rates across the economy.

We expect Westpac to regain some favour from the market after this result, even if that doesn’t occur today. Top line growth isn’t the best but it isn’t disastrous either and we think more than factored into the share price.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.