Expecting $3.11bn cash earnings, 59¢ interim dividend

WBC will release its 1H22 result on Monday 9 May. Our forecasts are: 1) statutory earnings $3.09bn; 2) statutory EPS 84¢; 3) cash earnings $3.11bn; 4) cash EPS 85¢; 5) cash earnings ex-notable items $3.64bn; 6) cash EPS ex-notable items 99¢; 7) fully franked interim dividend 59¢, cash payout 70%; 8) cash ROE 8.6%; 9) group NIM 1.86%; 10) credit impairment charge $0.26bn/7bp GLA; 11) CIR 54%; and 12) level 2 CET1 ratio 11.8%.

We expect cash earnings of $3.11bn in 1H22e. This compares with $1.82bn in 2H21 (the miss being revenue shortfalls – i.e. largely lower Consumer other banking income – and higher overall operating expenses including a slew of one-off expenses) and $3.54bn in 1H21. The negative trend should then reverse and the 1H22e number appears to be in line with the 1Q22 cash earnings of $1.58bn. WBC’s balance sheet remains strong with a Level 2 CET1 ratio of 11.8% (vs. APRA’s new benchmark of 10.25%), down from 12.2% previously. The rest of the ratios also remain adequate with LCR over 142%, NSFR around 127% and the deposits to net loans ratio close to 84%.

Price target now $25.00 but maintain Hold rating

We have decreased cash earnings as follows: 1) FY22e nil; 2) FY23e -6%; 3) FY24e – 8%; and 4) FY25e -8%. This is due to: 1) lower other income (up to 2% lower); and 2) higher operating expenses (up to 5% higher, the change being expenses at around $9.5bn in FY24e compared to $9.0bn previously). On the other hand and based on lower overall risk metrics, we have cut the discount rate by 0.25% to 10.00% and the dividend sustainable yield by 0.50% to 4.00%. The net impact is therefore a small increase in the valuation and price target from $24.00 to $25.00 per share, all else being equal. Based on a 12-month Total Shareholder Return of less than 15%, we continue to rate WBC as a Hold.

To read the full report click the button below.

View Detailed Report
Authored by TS Lim – Analyst – at Bell Potter Securities, 12 April 2022
Important Disclaimer—This may affect your legal rights: Because this document has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives, a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the proper authority of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. This is general investment advice only and does not constitute advice to any person.
Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended.