Own Westpac (ASX:WBC) shares? Top broker says 'there is still a lot of work to be done'

Westpac has a lot of work to do still…

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Although Westpac Banking Corp (ASX: WBC) shares delivered a decent 10% return (before dividends) for investors in 2021, they underperformed the rest of the big four banks by a sizeable margin.

In light of this, investors may be wondering what needs to happen for Australia's oldest bank's shares to close the gap on its peers in 2022.

What could take Westpac shares higher in 2022?

The team at Bell Potter has been looking at Westpac's performance in 2021 and given its verdict on its shares.

In respect to its performance, the broker notes that the bank spent another year working on its transformation in the hopes of returning to sustainable profit growth in the future.

Unfortunately, Bell Potter doesn't appear to believe the transformation is complete and feels there is still a lot of hard work that needs to be done with its Fix, Simplify and Perform strategy.

The broker commented: "It seems it was another year of transformation prior to getting back to sustainable profit growth. While profit increased mainly due to an easing off in COVID-19 issues, there is still a lot of work to be done in driving change – specifically in terms of Fix, Simplify and Perform."

Its analysts highlight that most of 2021 was spent on the Fix pillar of its strategy. This involved risk management, customer remediation, and completing regulatory investigations. It also worked hard on the Simplify pillar, which involved exiting/divesting businesses, closing products, and streamlining fees.

This means that 2022's focus will be predominantly on the third pillar, Perform. It is aiming to strengthen its franchise, improve returns, and lower costs. In respect to the latter, Westpac is wanting to reduce its cost base materially by FY 2024 to $8 billion from $10.2 billion.

However, Bell Potter has warned that "these changes still soak up time and money" and that its cost cutting plan is "a big ask at this stage."

Is it a buy?

In light of the above, the broker believes Westpac's shares are close to being fully valued now.

Its analysts have put a hold rating and $22.00 price target on its shares. This is broadly in line with where its shares are trading this afternoon.

Motley Fool contributor James Mickleboro owns Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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