The Westpac Banking Corp (ASX: WBC) share price was a positive performer on Thursday.
In response to its first quarter update, the banking giant's shares rose over 2% to $21.07.
What's being said about Westpac?
The team at Goldman Sachs has been running the rule over the Westpac result and has given its verdict.
According to the note, the broker has mixed feelings about the bank's performance during the quarter.
Firstly, it was pleased to see Westpac's cash earnings of $1.58 billion run-rating 4% ahead of what is implied with its half year estimates. The broker notes this was driven entirely by better than expected revenues in the Markets and Treasury businesses.
Another couple of positives were that its bad debt charges were broadly in line with Goldman's estimates and its CET1 ratio of 12.2% is tracking 17 basis points ahead of expectations.
But that's largely where the positives end. The broker notes that Westpac's net interest margin (NIM) fell 8 basis points to 1.91% and that management expects further NIM weakness to occur during FY 2022.
Is the Westpac share price good value?
Goldman Sachs has lifted its price target on the Westpac share price to $26.24. This implies potential upside of approximately 25% before dividends and over 30% including them.
However, despite this huge potential return, the broker isn't ready to recommend its shares as a buy and has retained its neutral rating.
Goldman explained: "While we remain Neutral on WBC, we do note that management is making progress on a number of its initiatives, and we specifically note: i) while NIM trends were weak, given higher liquids, competition and mortgage mix, it was not materially worse than market expectations, and the market should not forget WBC's medium term NIM leverage to higher cash rates, ii) underlying costs were well down in the quarter (vs. last half average), management remains committed to further expense reductions in FY22E, management reiterated its FY24 cost target of A$8 bn, and continues to make adjustments to the business model to support this target, and iii) balance sheet settings remain conservative."
"Further evidence of i) execution on its strategy and/or ii) stabilisation of retail profitability, would see us get more positive," it concluded.
