Home' The Great Southern Weekender : March 4th 2010 Contents * This document is intended to provide general securities advice only, and has been prepared without taking account of anyone's objectives, financial
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all your personal circumstances.
Taking care of business...
64 The Weekender, March 4, 2010
Positive outlook for WBC
WBC Share Price
Westpac Bank (WBC)
WESTPAC Bank (WBC) has
delivered a very strong start to
the financial year, announcing
1Q10 unaudited cash earnings
of $1.6b, up 33% on 1Q09 and
well above our expectations.
The key drivers were: strong
business momentum (lending up 1.7% and
deposits up 1.4% from Sept-09); reduced bad
debts (down 50% on pcp to $400m); a rebound
in wealth earnings; and tight cost control.
Margins were down 5bps over the quarter as
funding costs continued to rise.
WBC's Tier 1 capital ratio improved to 8.5%
(up 38bps since Sept-09).
The unaudited $1.6b NPAT for 1Q10 suggests
1H10 NPAT will exceed $3b and WBC reports
its audited 1H10 results on 5 May 2010.
The 1Q10 market update was reassuring par-
ticularly the steep decrease in bad debts.
WBC now has a more positive view on trad-
ing conditions for 2010 due to much improved
We have updated our earnings forecast for
FY10 following the positive bad debt trends
experienced in 1Q10.
We have reduced our bad debt forecasts to
$1.1b for 1H10 and to $1b for 2H10 (our up-
dated FY10 forecast is now $468m lower than
our previous full year FY10 forecast).
We are comfortable with
WBC's relatively lower capital
position compared to its
We have increased our fore-
cast EPS for FY10 and FY11
by 5.7% and 5.8%, reflecting
the much improved outlook
for bad debts and strong
Consequently we have increased our valua-
tion from $26.85 to $28.70 and our 12-month
price target is $31.19.
WBC, along with CBA followed by ANZ, re-
main our preferred exposures of the four major
banks and today's market update has reaf-
firmed our view.
At current prices, we have maintained our
short-term and long-term BUY recommenda-
tions for WBC.
Our earnings forecasts reflect lower bad-debt
expenses and robust margins despite funding
costs remaining high.
Whilst the pace and extent of the economic
recovery is uncertain, we remain positive.
We do not expect further capital raisings in the
near term, and in our view, WBC is well posi-
tioned to take advantage of improving market
At current levels, our short-term view is posi-
- Eddy Orzel, Senior Client Advisor,
Patersons Securities Ltd.
68 Cockburn Road, Albany
Phone: 9841 6400 Fax: 9842 1168
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