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Westpac Banking Corp WBC

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The Number Eight Could Bring Westpac Luck, but Cost Savings Look Ambitious

Nathan Zaia Equity Analyst

Analyst Note

| Nathan Zaia |

Westpac’s first-half fiscal 2021 result was solid, with cash profit of AUD 3.5 billion up 256% on first half 2020 and 119% on second-half 2020. The most interesting news is management’s aggressive target to bring costs down by approximately 15%, or AUD 1.5 billion, to AUD 8 billion by fiscal 2024. The reductions exclude costs from businesses earmarked for divestment. We think there is a high chance the bank falls short on its target given changes could begin to impact customer and employee satisfaction, and see the bank lose market share. In addition, there could also be unforeseen costs around risk and compliance, regulatory change, or competitive disruptions. We have lowered our long-term operating cost forecasts by 5%, which implies an underlying cost base of AUD 9.5 billion by fiscal 2024. We increase our fair value estimate by 7.5% to AUD 29 after factoring in a portion of the planned lower costs and the time value of money. Shares traded up 5% on the day of the result and trade at a 9% discount to our updated fair value estimate.

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Company Profile

Business Description

Westpac is Australia's oldest bank and financial services group, with a significant franchise in Australia and New Zealand in the consumer, small business, corporate, and institutional sectors, in addition to its major presence in wealth management. Westpac is among a handful of banks around the globe currently retaining very high credit ratings. The bank benefits from a large national branch network and significant market share, particularly in home loans and retail deposits.

275 Kent Street
Sydney, NSW, 2000, Australia
T +61 291557713
Sector Financial Services
Industry Banks - Diversified
Most Recent Earnings Sep 30, 2008
Fiscal Year End Sep 30, 2021
Stock Type
Employees 38,747