Could the Westpac Banking Corp (ASX: WBC) share price be worth a buy?
Some brokers have had their say after having a look at the numbers reported by the big four ASX bank for the first quarter of FY21.
So let's have a look at some of those highlights first before getting to the broker thoughts.
Westpac's FY21 first quarter highlights
The major ASX bank reported an unaudited statutory net profit of $1.7 billion, which compared to the second half quarterly average statutory profit of $550 million.
It also reported unaudited cash earnings of $1.97 billion, which was up on the second half of FY20 quarterly average of $808 million. Cash earnings were up 54% when excluding notable items.
The bank said that core earnings were up 28%, or up 3% excluding notable items.
Part of the profit growth came about from an impairment benefit of $501 million from improved credit quality, the stronger economic outcomes and a better economic outlook after COVID-19 impacts. Consumer delinquencies of more than 90 days were lower over the quarter, including Australia mortgage delinquencies over 90 days being 16 basis points lower to 146 basis points.
The number of loans that are in deferral continue to decline. It had $11 billion of Australian mortgage deferrals at 31 January 2021, with a significant roll-off expected in February and March.
Westpac's net interest margin of 2.06% was up 3 basis points compared to the second half of FY20.
Discussing the outlook for Westpac, the CEO Peter King said:
We are also beginning to improve momentum in mortgages and while the book was little changed over the half, we have processed a significant increase in applications. Low interest rates, rising house prices, new construction, and high consumer confidence all points to continued recovery in home lending activity in 2021.
What do brokers think?
Broker Morgans was particularly impressed by the update, as the cash profit was 23% better than the broker was expecting. It was mostly better because of the impairment benefit with the provision release.
Another important point that the broker liked was the NIM of 2.06%. The NIM is an important profitability metric for banks like Westpac.
For Morgans, Westpac is the best big bank and thinks it's a better pick than Commonwealth Bank of Australia (ASX: CBA).
Morgans is expecting Westpac to pay a dividend of $1.32 per share for FY21, which translates to a grossed-up dividend yield of 7.8%. It has a share price target of $27.50 for Westpac.
However, broker Ord Minnett wasn't that impressed. It thinks that it will need to show more of a recovery if Westpac wants to continue to do better than other big banks.
Ord Minnett did say that Westpac is on track to consider extra capital returns with how strong the bank's balance sheet is now with a CET1 ratio of 11.9%. Ord Minnett has a share price target of $24.50 for Westpac shares. The broker thinks that the bank will only pay a grossed-up dividend yield of 7.1% for FY21.
