Westpac Banking Corp (ASX: WBC) shares are edging higher on Wednesday morning.
At the time of writing, the banking giant's shares are up almost 1% to $32.09
Image source: Getty Images
Why are Westpac shares rising?
Investors have been buying the company's shares this morning following the release of an update on its FY 2024 profit expectations.
According to the release, Westpac's reported net profit after tax in FY 2024 will be reduced by $123 million due to notable items. This may be better than the market feared, which could be helping its shares today.
Australia's oldest bank revealed that these notable items relate solely to unrealised fair value gains and losses on economic hedges and net ineffectiveness on qualifying hedges, which reverse over time.
Westpac is due to release its results on 4 November.
Segment changes
In addition, Westpac notes that segment operating income and operating expenses were restated in the first half of FY 2024. This followed the establishment of separate Consumer and Business & Wealth operating segments, the dissolution of the Specialist Businesses operating segment, and other reporting enhancements.
But the bank isn't stopping there. In the second half of FY 2024 additional restatements have been made. This relates to the reclassification of some deposit products from interest bearing to non-interest bearing.
This includes some mortgage offset accounts which had a minor impact on average interest earning assets and the reallocation of Enterprise functions' operating expenses to the Consumer, Business & Wealth and Westpac Institutional Bank segments.
The good news, however, is that these changes do not impact the bank's net profit after tax (NPAT) or the composition of line items.
Should you invest?
As with the rest of the big four banks, the broker community largely believes that Westpac shares are overvalued following strong gains over the past 12 months.
For example, a recent note out of Goldman Sachs revealed that its analysts had a sell rating and $25.84 price target on its shares. This implies potential downside of approximately 19% for investors. The broker commented:
We remain Sell-rated on WBC given: i) WBC's technology simplification plan (details here) comes with a significant degree of execution risk, given historically banks' large-scale transformation programs have struggled to stay on budget, and we note management today has flagged ongoing inflationary pressures, and ii) of the major banks, WBC's balance sheet is the most overweight domestic housing, which we expect will be more growth constrained than commercial lending over the medium term. Therefore, trading on a 12-mo forward PER of 15.3x, nearly two standard deviations above its 15-yr average, we stay Sell.
