Could the Westpac Banking Corp (ASX: WBC) share price be good value at the moment?
Westpac shares haven't moved much over the last month. However, it has done a bit better over the last six months – it's up 15%.
What has happened for the bank recently?
In recent weeks the bank has been busy with strategic decisions and executing divestments with various smaller parts of its business.
It recently completed the sale of its vendor finance business. Westpac also has announced the sale of a number of businesses.
The major bank announced at the end of June 2021 that it is selling it's motor vehicle dealer finance and novated leasing businesses to Angle Finance. It will retain its existing retail auto loans of around $10 billion originated by the businesses being transferred. These loans will run down in the normal course of business over the life of those loans.
Westpac is also selling its Australian life insurance business to TAL for $900 million, whilst also entering into an exclusive 20-year strategic alliance for the provision of life insurance products to Westpac's Australian customers. The transaction sees Westpac exit manufacturing life insurance products and releases "significant" capital back to the bank, with a total accounting loss on sale of $1.3 billion after tax.
It's also selling its New Zealand life insurance business to Fidelity Life for NZ$400 million and is entering into an exclusive 15-year agreement for the distribution of life insurance products to Westpac's New Zealand customers.
However, the bank has decided to retain its Westpac New Zealand business.
The bank is also dealing with alleged fraud relating to Forum Finance which could have a potential exposure of around $200 million.
Some of the above sales are expected to increase the bank's capital position. The board may be considering shareholder returns with the excess capital on the balance sheet, which could put the Westpac share price in focus.
What about Westpac's profit?
The bank released its FY21 half-year result a few months ago.
It said that compared against the comparative period of the first half of FY20, statutory net profit jumped 189% and cash earnings increased 256%. The bottom line was assisted by the fact that loan provisions were implemented in 2020 due to COVID-19, but not repeated in FY21 (so far). It was the anticipation of bad loans that sent the Westpac share price spiralling downwards in the first half of 2020.
Excluding notable items, FY21 first half profit was up 60% to $3.8 billion.
This result gave the Westpac board the confidence to declare an interim dividend of 58 cents per share.
Is the Westpac share price good value?
The broker Citi certainly seems to think so. It has a price target of $30 on the bank, suggesting Westpac shares could rise by close to 20% over the next 12 months if the broker is right.
Citi thinks Westpac could implement capital initiatives for shareholders after its numerous divestments.
The broker also noted Westpac's three-year plan of reducing its cost base to $8 billion by FY24.
Morgans is another broker that rates the Westpac share price as a buy. The broker thinks Westpac is valued at 13x FY22's estimated earnings with a projected grossed-up dividend yield of 7.25%.
