While Westpac Banking Corp (ASX: WBC) shares have been a successful investment over the past 12 months, its upside from here could be limited according to analysts.
For example, the team at Morgans put a sell rating and $34.06 price target on the big four bank's shares this week, while Ord Minnett put a sell rating and $31.00 price target on them. This implies potential downside of 15% to 20%.
In light of this, investors may find better returns from other ASX financials shares. But which one?
Well, Bell Potter has named one share this week and is predicting strong returns by this time next year.
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Which ASX financials share?
The share that Bell Potter is bullish on is Cuscal Ltd (ASX: CCL).
It is a licensed authorised deposit-taking institution that provides payment and regulated data services in Australia.
Bell Potter notes that the ASX financials share has announced the acquisition of Paymark for $27 million cash consideration. This will be funded through an equity raising under its existing placement capacity.
The broker is positive on the acquisition, even though it only expects it to be modestly accretive. It said:
The newest acquisition provides CCL with immediate scale into the New Zealand market without overpaying. While the accretion numbers look more modest this time, the standout takeaway is a strong execution track record and proven ability to win deals. The price equates to 5x deal forecast Paymark earnings in FY27 net of an investment program to upgrade its switch technology for $21m ending FY30. This is the total replenishment cost on $19.8m pro-forma annualised EBITDA.
We view CCL as unique in being able to clear hurdle rates and extract accretion from scale. For instance, Paymark is expected to generate $5.4m NPAT on a like-for-like basis which is lower than the historical $6.4m and equates to an FY27 ROIC of 18%. This rises to 25% following project completion and value extraction does not factor in cost synergies. The raising will keep the Group CET1 ratio in the range of 18-19% and is expected to deliver mid-single digit EPS accretion FY27. The vendor is rationalising its portfolio, and we understand the bidding process was competitive.
Major upside potential
According to the note, the broker has retained its buy rating on the ASX financials share with an improved price target of $5.80 (from $5.10).
Based on its current share price of $4.50, this implies potential upside of almost 30% for investors over the next 12 months.
Commenting on its buy recommendation, the broker said:
The deal looks similar to 2014 SPS acquisition, with expanded customer cross-sell. There is no technology integration risk and Paymark relates to a different capability.
