The Westpac Banking Corp (ASX: WBC) share price was on form on Monday.
The banking giant's share rose almost 2% to $21.74. This was driven by a positive reaction to the company's half-year results release.
In case you missed it, Australia's oldest bank reported a 22% increase in profit to $4 billion. This was driven by a combination of solid net interest income growth and lower expenses.
This allowed the Westpac board to declare a 70 cents per share fully franked interim dividend, which was up 15% year over year.
Is the Westpac share price good value?
The good news for investors is that analysts at Goldman Sachs believe that the Westpac share price remains great value. So much so, the broker has kept the bank on its coveted conviction list with a buy rating and trimmed price target of $24.67.
Based on where its shares are currently trading, this implies potential upside of 13.5% for investors over the next 12 months.
But it gets better. Goldman is forecasting a 6.4% dividend yield in FY 2023 (and FY 2024), which lifts the potential 12-month total return to approximately 20%.
What did the broker say?
In respect to its results, the broker was reasonably pleased with what it saw. It said:
WBC's 1H23 cash earnings (GS basis ex-notables) from continued operations were up significantly hoh and +8% above GSe (+1% ex notables and businesses sold). The beat was driven by higher trading income and lower BDDs, partially offset by lower NIMs, and in line expenses, such that POP came in 3% higher than GSe (-1% ex notables and businesses sold). The 1H23 DPS of 70¢ (payout ratio 60%) was lower than GSe (72¢), and the DRP will be done with no discount. WBC's 1H23 CET1 of 12.3% (globally harmonised 18.1%) was 26 bp better than GSe. WBC reiterated that it would operate within a CET1 range of 11.0-11.5% and amended its payout ratio range to 65-75% of reported NPAT, ex-notables.
Why is it so bullish?
Goldman Sachs has outlined three key reasons why it is bullish on the Westpac share price. They are as follows:
We remain Buy rated (on CL) on WBC given: i) we view WBC's NIM management in the half as a positive relative to peers, in particular having achieved an exit NIM that was flat versus 2Q23 average in contrast with peers who saw continued deterioration, ii) despite WBC walking away from its FY24E cost target of A$8.6 bn, we expect a broadly flat cost trajectory over the next two years, which will see WBC outperform peers in this relatively difficult inflationary environment, and iii) the stock is trading on a c.11x 12-month forward PER (ex-dividend adjusted), which is a 23% discount to peers (versus 3% historic discount), and our revised TP of A$24.67 offers 25% [now 20%] TSR.
