Westpac Banking Corp (ASX: WBC) shares are charging higher on Monday.
In morning trade, the banking giant's shares are up almost 2% to $26.90.
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Why are Westpac shares charging higher?
Investors have been buying the bank's shares this morning after responding positively to its half-year results release.
For the six months ended 31 March, Westpac posted a 4% year on year decline in net operating income to $10,590 million compared to the prior corresponding period. This reflects flat net interest income of $9,127 million and a 23% decline in non-interest income to $1,463 million.
On the bottom line, the bank's net profit before one-offs came in at $3,506 million. This represents an 8% decline on the prior corresponding period and a 1% fall on the second half of FY 2023.
Despite its weaker profits, the Westpac board surprised the market with a decent dividend increase, a special dividend, and an increase to its on-market share buyback.
The bank has increased its fully franked interim dividend by 7.1% to 75 cents per share, declared a special fully franked dividend of 15 cents per share, and added $1 billion to its ongoing share buyback.
Broker reaction
Analysts at Goldman Sachs have responded positively to the results release. They said:
WBC reported 1H24 cash earnings ex notables of A$3,506 mn, which was up +12% hoh and +1.7/+1.6% higher than GSe/Visible Alpha Consensus Estimates (VAe), driven by lower than expected BDDs, which came in c.10% lower than expected. PPOP was broadly in line with GSe but +1% higher than VAe.
Goldman also notes that the bank's shareholders' returns were ahead of expectations. It adds:
WBC's 1H24 CET1 ratio of 12.5% (globally harmonised CET1 18.6%) was up 17 bp in the half and 11 bp better than our estimate. The interim 2024 dividend of 75¢ was 3¢ higher than GSe (72¢), bringing the interim ordinary payout ratio to 74% (ex-notable items), and the DRP (for both the ordinary and special dividends) 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.
And while the broker was forecasting another share buyback, it was twice the size as it was predicting. It said:
As a result of the strong capital position, WBC topped up its on-market buyback by A$1.0 bn (GSe had an additional A$0.5 bn vs. current announced), as well as a 15¢ special dividend. The buyback and special dividend will reduce WBC's CET1 ratio by 0.49%, leaving its pro-forma CET1 ratio of 12.06%, still well above the top end of its target range of 11.0-11.5%.
Is the bank a buy?
As things stand, Goldman has a neutral rating and a $23.71 price target on Westpac's shares. Though, this could change once it has updated its financial models.
