From Credit Suisse:
- WBC reported cash earnings of $7,097mn (up 8% on $6,598mn FY12) which was 1% better than both our $7,058mn estimate and the $7,050mn consensus average. Final DPS of $0.88 (up 4% on the $0.84 pcp) plus final special DPS of $0.10 was in line with Credit Suisse and the consensus. Divisionally, 2H13 sequential cash earnings growth was driven by Westpac RBB, BT and NZ, with flatter performances from St George and WIB, and a much weaker result from Group Businesses (treasury & markets). Compositionally, relative to our expectations the result was weaker than expected with revenues lower than expected (margins) and costs higher than expected (amortisation, investments) offset by declining bad debts (0.16%) and effective tax (centrally held provisions). Positive headline surprise therefore primarily reflected lower bad debts, more than offsetting weaker treasury / markets income.
- Investment Case: We expect the shares could struggle in the wake of a softer-than-expected result, with the stock trading at a greater-than-traditional PE premium going into this result. What we liked about the result: Reasonable “core” non-interest income lines; Sizable improvement in the impaired ratio; Franking credit surplus still strong ($585mn). What we didn’t like: Soft 2H13 net interest margin -7bp sequential (treasury & markets); Negative 2H13 sequential costs (3%) and revenues (1%), leading to flat corresponding underlying profit.
- Valuation: WBC currently trades on 14.8x 12-month prospective earnings (5% premium to the major bank peer group vs. a 2% four-year average premium) and a corresponding book multiple of 2.3x.
If you’ll forgive me for saying so, 15x forward PE is priced for perfection.
I will remind you too of a little history. The last time WBC paid a big special dividend was right before it virtually went bankrupt. On its knees it was saved by Kerry Packer’s equity in 1992.
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Just sayin’!
