The Westpac Banking Corp (ASX: WBC) share price has been rising over the last few months, as the chart below shows. Investors may be wondering if the bank is still a buy – there are a few reasons why UBS still rates Westpac as a buy.
After seeing the recent FY25 half-year result, UBS noted the result was in line with market expectations in terms of the cash net profit after tax (NPAT). However, the dividend per share of 76 cents was lower than market expectations of 80 cents per share.
UBS pointed out that the bank's cost and capital attracted the most attention, as did the ASX bank share's portfolio tilt towards business and institutional banking (representing 57% of group earnings). However, excluding notable items, overall earnings per share (EPS) contracted 2% half-over-half, while return on equity (ROE) was down to 9.7%.
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Why is the Westpac share price still attractive?
After seeing the numbers, UBS did reduce its cash forecasts for FY25 by 6.1%, for FY26 and FY27 by 3.2%. The net interest margin (NIM) forecasts were also decreased because of expected RBA cash rate cuts. The broker expects that the RBA cash rate will reach 3.1%.
While the broker did increase its Westpac cost estimates, mainly from the impact of higher staff numbers, credit leases are expected to decrease because of the improved quality of loans.
UBS then said:
Even after a soft dividend, in our view, Westpac is the most credible re-rate story among the large Australian banks in a fully priced banking sector. The bank has a clear cost out path, which the market remains sceptical on, while revenue pressure might reduce as the benefits of the strategic pivot to business & institutional banking occur.
Price target
A price target is where the broker thinks the business will be in 12 months from the time of the investment call.
UBS currently has a price target of $36 on the Westpac share price, along with the buy rating. That means the broker is expecting the ASX bank share to rise by around 5% within a year.
In a year, we'll be in Westpac's FY26. In the 2026 financial year, UBS is predicting that Westpac could generate $6.95 billion of net profit.
That means it's trading at 16.6x FY26's estimated earnings. It's also worth noting the broker is predicting that net profit could increase every year between FY26 to FY29.
