Westpac shares rise on 'in-line' result, big dividend, and $1.5b share buyback

Westpac's full-year results have gone down well with the market on Monday.

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Westpac Banking Corp (ASX: WBC) shares are having a positive start to the week.

In morning trade, the banking giant's shares are up over 1.5% to $21.86.

Why are Westpac shares rising today?

Investors have been buying Westpac shares this morning in response to the bank's full-year results release.

For the 12 months ended 30 September, Westpac reported a 36% increase in net operating income to $21,645 million. This was driven by a 7% increase in net interest income to $18,317 million and a 36% jump in non-interest income to $3,328 million.

On the bottom line, Australia's oldest bank posted a 26% increase in net profit after tax to $7,201 million. Together with its strong capital position, this allowed the Westpac to increase its dividend by 14% for the year to 142 cents per share and announce a $1.5 billion share buyback. The former comprises a 70 cents per share interim dividend and a 72 cents per share final dividend.

How does this compare to expectations?

Goldman Sachs notes that the result was broadly in line with the market's expectations and a touch ahead of its own. It said:

WBC reported FY23 cash earnings (GS basis ex-hedging) of A$7,221 mn was up significantly on the prior period and broadly in-line with expectation (+1.2%/+0.2% above GSe/Visible Alpha Consensus). We note that ex notables and businesses sold earnings of A$7,237 mn was up 13% hoh. There were minimal surprises in terms of revenues and expenses, with PPOP broadly in line with GSe, while BDDs came in lower than expected.

The broker also highlights that Westpac's capital position was stronger than it expected, which explains its higher-than-forecast share buyback and dividend. It adds:

WBC's FY23 CET1 ratio of 12.4% (globally harmonised CET1 18.7%) was up 9 bp in the half and 43 bp better than our estimate. As a result of the strong capital result, WBC announced a A$1.5 bn buyback (GSe A$1.0 bn). The buyback will reduce WBC's CET1 ratio by 0.33%, leaving its pro-forma CET1 ratio of 12.1%. The final 2023 dividend of 72¢ was 2¢ higher than GSe (70¢), bringing the full year payout ratio to 69%, ex-notable items, and the DRP will be done with no discount, with shares to be neutralized via an on-market buyback. WBC reiterated its sustainable payout ratio range to 65-75% of NPAT ex-notables.

As things stand, Goldman has a neutral rating and a $22.61 price target on Westpac shares. Though, that could change once it has made adjustments to its model in the coming days.

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

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