Westpac Result: Strong all-round performance

Please see below comments on the Westpac results from Morningstar head of financials David Ellis

Strong all-round performance, with special dividend earlier than expected

"Robust top line revenue growth and sharply lower bad debts boosted first half cash profit to $3.53bn, up an impressive 10% on 1H12. The strong result is hard to fault, exceeding both our $3.5bn forecast and consensus of $3.4bn. The earnings performance confirms our long held argument the major banks can deliver attractive profit and dividend growth despite only moderate loan growth. The 86cps fully franked interim dividend increased 5% on 1H12 based on a 76% payout. The highlight is the 10cps fully franked special dividend announced earlier than we had expected. Pleasingly, under the dividend reinvestment plan (DRP) the ordinary and special dividends will be ‘neutralised’ with the bank buying an equivalent number of shares issued under the DRP on market. We argue this a positive for shareholders.

The impressive performance supports our positive outlook on Westpac and the major banks. We are increasingly confident in the medium term outlook and will likely reassess earnings forecasts. Many highlights include an increase in ROE to 16.1%, revenue up 5% on pcp, expenses up 4% on pcp, core earnings up 6% to $5.6bn, a reduction in bad debts to six year low of $438m, cost to income ratio declining from 41.1% to 40.6%, net interest margin up 1bps to 2.19%, Tier 1 capital ratio up to 8.7%. We were expecting a special dividend or share buy back at the full year FY13 results in November, so today’s announcement was a pleasant surprise. The special dividend reflects strong capital position and lower risk highly profitable retail focused loan portfolio. Moderate loan growth and increasing surplus capital provides us with confidence attractive fully franked dividends are sustainable."

ENDS

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