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How Westpac Has Been Performing Over The Long Term?

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Westpac (ASX : WBC) has largely tracked sideways since their recent release of half year annual results. Net profit at the lender was down 19%, with remediation and restructuring items driving the change. After the result, Westpac has a payout ratio of 98%, indicating that it hardly has any profits to re-invest in the company.

westpac - report
Westpac has barely moved over the past 12 years (Credit: AFN Daily)

This has caused fears of a dividend cut in the market, with UBS and Deutsche Bank producing bearish dividend forecasts that are weighing on the share price. NAB has already cut its dividends and both ANZ and CBA will struggle to maintain their dividend payouts in the absence of profit growth. To make matters worse, NIMs (net interest margins) are declining, meaning that profitability across the sector is at some of the lowest levels on record.

Low NIMs also make profits across the sector more volatile, which contributed to Westpac still posting a profit decline of 22% in a strong economy. While it was mainly remediation charges driving the change, low profitability increases the vulnerability of the sector. We anticipate increased earnings volatility and reduced dividend stability across all of the big four banks, not just Westpac, relative to the last two to three decades.

Westpac was one of the least effected banks from the Royal Commission but is still making changes to their underlying business. The business is going to exit the wealth advice business, while trying to address customer issues that came to light in the royal commission. Westpac is also growing its digital sales and aims to be the leader in fintech. They have established several partnerships with companies like Zip and have invested $150m into an advanced fintech platform. The company has not achieved meaningful earnings growth for a long time, so it remains to be seen whether they will be able to execute going forward.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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