Financial Services

Westpac’s trading update expected to underwhelm: Citi

By Market Index
Wed 02 Feb 22, 11:17am (AEDT)

Key Points

  • Citi believes further franchise weakness is already priced in
  • Citi forecasts core profit to drop by around 9% versus 2H FY21
  • Ord Minnett believes the economic backdrop supports the banking sector

While Westpac (ASX: WBC) will provide a quarterly trading update on Thursday, one broker has already prepped the market to expect a largely uninspiring result.

Following a challenging FY21 result, Citi noted in The Australian this morning that further franchise weakness is already priced into what is expected to be a relatively bleak update.

Due to a lower quality bad and doubtful debts beat, the broker is forecasting core profit to drop by around -9% versus the second half FY21 quarterly average and consensus of -5%.

Nevertheless, the broker notes that cash profit expectations appear to have bottomed at around $1.4bn for the quarter.

While Citi is not expecting a meaningful improvement in fundamentals in 2022, the broker is hopeful of an improvement in expectations management, which “would see the stock screening cheap at 1x book in an inflationary environment.”




Westpac share price performance over six months versus the ASX100.

What brokers think

  • Morgan Stanley believes banks, as a group, might outperform the broader share market in 2022 "against a backdrop of higher rates". Equal-weight rating retained, and target price has declined to $22.70 from $24.80 (21/01/22).

  • Ord Minnett also believes the economic backdrop in Australia remains supportive of the Australian banking sector. Against the general trend, the price target for Westpac has declined to $23.30 from $24.50, and rating is a Hold (21/01/22).

  • Macquarie assess Westpac as the most likely [bank] to be affected by a lack of repricing and significant competitive pressures in fixed-rate which are likely to contribute to a margin squeeze. The broker’s $25.50 target price and Neutral rating are both maintained (15/12/21).

Based on the six brokers covering the bank, (as reported by FN Arena), Westpac is currently trading with a 26.4% upside to a target price of $25.78.

Consensus on Westpac is Hold.

Based on Morningstar’s fair value of $25.87, the bank looks to be undervalued (29/09/21).


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Market Index

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