The Westpac Banking Corp (ASX: WBC) share price is in focus. Between 17 June 2022 and 12 August 2022 it went up 18%. After dipping lower over the past week, is the big four ASX bank share an opportunity worth buying?
On the ASX there are a number of banks including Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
While there are plenty of similarities between the banks, some investors have a preference for which banks are buys and which are not.
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Expert view
A few weeks ago, Neil Margolis was speaking to Livewire Markets and was asked whether the Westpac share price was a buy, hold or a sell.
Margolis said that Westpac shares are a buy, particularly when compared to CBA.
He acknowledged the problems that the bank has had but also said that the bank has a large amount of surplus capital. Margolis said to Livewire:
Just putting it next to CBA is very stark. It's got so many levels of surplus capital, say $8 billion to $10 billion, similar for franking. But its market value is $90 billion, and CBA is $180 billion. So it's quite extraordinary. One of the reasons it's a lot cheaper is because they've lost control of their costs. So, they do need to get their costs under control. They've had much more management turnover. But putting that all aside, there's a big opportunity to take cost out, and the dividends look pretty safe to us. At a sector level, I had a look today, the four major banks spent $36 billion a year on costs, which is roughly the same as Afterpay's valuation. And I'm not sure which number actually astounds me more.
Westpac currently has a market capitalisation of $76 billion and CBA has a market capitalisation of $168 billion according to the ASX.
Westpac's third quarter update
Investors are able to get insights into a business's performance from quarterly updates and this can impact the share price.
While it didn't include any actual profit numbers, Westpac did tell investors about some of its financial numbers in the three months to 30 June 2022.
Westpac said that its common equity tier 1 (CET1) ratio was 10.75% at June 2022, down from 11.33% at March 2022. However, that reduction was down to a dividend payment and higher risk-weighted assets (RWA). RWA rose $18 billion, or 3.9% in the third quarter of FY22.
However, the 'pro forma' CET1 capital ratio was 11% which reflects planned divestments.
In terms of the credit quality, Westpac said that the provision cover is little changed, while credit quality improved – stressed assets to total committed exposure (TCE) reduced 4 basis points to 1.06%.
Mortgage delinquencies that were at least 90 days overdue improved. In Australia, it improved 5 basis points to 0.83% and in New Zealand, it improved 2 basis points to 0.28%.
What is the Westpac share price valuation?
Every analyst may have a different estimate for what the bank is going to report for its FY22 result.
According to numbers on CMC Markets, Westpac shares are valued at 15 times FY22's estimated earnings and under 12 times FY23's estimated earnings.
The big four ASX bank share is expected to pay an annual dividend of $1.23 per share in FY22 and a $1.33 annual dividend per share in FY23. That translates into grossed-up dividend yields of 8% in FY22 and 8.7% in FY23.
