Brokers deliver split decision on Westpac FY23 results

For most Aussie companies, reporting season occurs in February and August following half year’s end on December 31 and full year’s end on June 30, respectively. But there’s also a ‘mini-reporting season’ which occurs in November (and May) for several Australian banks.

Macquarie Group (ASX: MQG) kicked this one off on Friday with their half yearly result, and that was followed up yesterday by Westpac’s full year results. We will hear full year results from National Australia Bank (ASX: NAB) on Thursday, and ANZ Group (ASX: ANZ) on Monday 13 November, and get a first quarter trading update from Commonwealth Bank (ASX: CBA) on Tuesday 14 November.

On face value, Westpac’s FY23 result appeared to be broadly in line with market expectations. The stock closed modestly higher, up 1.9%, but this was well off its highs (it was up 3.8% at one stage). It has given back 2.9% in early trading so far today. So in terms of the price action, it appears the result was somewhat polarising.

Whenever there’s a big company announcement, you can bet the big brokers will pour over every detail and produce a research note for clients either that afternoon, or for consumption with their morning coffee the next day.

How to read broker coverage

Often after conducting research of a big announcement, brokers will amend their 12-month price target for the stock in question, or their all important ‘broker rating’. This is when you’ll read something like, Broker X has ‘upgraded’ or ‘downgraded’ Stock X in one of Market Index’s top quality market reports!

Brokers typically rate each stock in their coverage as ‘Buy’, ‘Hold’ or ‘Sell’ (or some variation on these three themes like ‘Overweight’, ‘Add’, or ‘Accumulate’ as an alternative for Buy, ‘Neutral’ versus Hold, and ‘Underweight’ or ‘Lighten’ as an alternative for Sell etc.).

Changes in a big broker’s price target and/or rating can really impact a company’s stock price, so it makes sense to keep tabs on them. Fortunately, here at Market Index we have swathes of broker moves data in our Morning and Evening Wraps, and in our dedicated Broker Consensus page.

This is where you’ll be able to search our database of broker moves for companies exhibiting a particular broker consensus rating, e.g. ‘Buy’, or by profit potential based upon the distance between a company’s current price and its broker consensus target price.

How did the big brokers rate Westpac’s FY23 results?

Let’s check out what the big brokers had to say about Westpac’s full year results:

• Jefferies analyst Matthew Wilson noted a lack of clear strategy on addressing costs is hampering WBC’s profitability. He cuts earnings estimates for FY24-FY26 based upon expected softer revenues versus stubbornly higher costs. It appears the going got tougher for the bank in H2. Target: $17.50; Rating: Underperform

• Goldman Sachs analyst Andrew Lyons cut FY24-26 EPS estimates due to higher costs, but liked the company’s announcement of an additional $1 billion buyback. He noted there’s some value in WBC as it’s trading at book value, and given its 12-month forward PE of 12.1 is slightly lower than the 15-year average of 12.6. Target: $22.70 (from $22.61); Rating: Neutral

• Barrenjoey analyst Jon Mott noted headwinds for net interest margins and costs. He is concerned about the substantial execution risks attached to the IT upgrade, as well as deteriorating credit quality, albeit off low base. Despite the risks, the bad news may have been priced in, and the company is trading at an attractive valuation. Target:$22.00 (from $21.00); Rating: Neutral

• CLSA analyst Ed Henning noted several headwinds for the bank going forward including increased amortisation charges and inflation related costs. These headwinds may not ease until next year. The bank’s capital position was strong, and the new buyback is positive. The market is probably too negative on costs and margins as some of these pressures are set to ease. Target:$22.70 (from A$22.40); Rating: Outperform

• Jarden analyst Carlos Cacho delivered Westpac’s only broker rating upgrade. He said the result was better than the market was expecting and the bank was in a strong capital position. The turnaround will be a long road but there are upside risks with respect to costs and spending on investments in the business. The buyback is also likely to support the price, and there is potential for further capital management initiatives. Target:$21.60 (from A$21.40); Rating is now Neutral (upgraded from Underweight)

And the consensus is…

According to the 15 brokers FactSet tracks, there are 3 with ratings equivalent to a ‘Buy’, 7 with a rating equivalent to a ‘Hold’, and 5 with a rating equivalent to a ‘Sell’. Factset also notes that the average price target among brokers for Westpac rose +0.2% to $20.75. Based upon its $21.33 price at the time of writing, this implies 2.7% downside.