5 expert tips for digging into the Westpac Banking Corp stock price (ASX: WBC)


With the WBC share price around $ 21.35 today, it’s worth wondering if Westpac banking company (ASX: WBC) stocks are in the money. In this article, we will look at the process of finding stocks of companies like WBC or Bank of Queensland Limited (ASX: BOQ) from scratch.

Westpac is the second largest ‘Big Four’ bank and financial services provider, headquartered in Sydney. Along with CommBank, ANZ and NAB, Westpac finances homeowners, investors, individuals (through credit cards and personal loans) and businesses.

5 expert tips for digging into the Westpac Banking Corp stock price (ASX: WBC)

Tips for analyzing culture at Westpac Banking Corp

For long-term investors looking to invest in big companies and own them for five, 10 or 20 years, at Rask we think it’s fair to say that a good work environment and a good culture of staff can lead to better retention of high quality staff and, in turn, the long-term financial success of a business.

One way for Australian investors to take a peek inside a company like Westpac Banking Corp or Bank of Queensland Limited is by using HR / jobs websites such as To look for. Seek’s website includes corporate HR data, including things like employee reviews. Based on the most recent data we pulled from WBC, for example, the overall corporate culture rating of the company of 3.4 / 5 was better than ASX banking sector average score of 3.23.

Is the loan profitable?

ASX bank stocks like WBC need debt and good profit margins to make their businesses profitable. This means that a bank obtains money from term deposit holders and wholesale debt investors and lends that money to owners, businesses and investors. The difference between what a bank is pay to savers and what made of mortgage holders (for example) is the net interest margin or NIM. Remember: When it comes to NIMs, the wider the margin, the better.

If you plan to forecast profits from a bank like WBC or National Australia Bank Ltd (ASX: NAB) Knowing how much money the bank is lending and what it earns per dollar loaned to borrowers is vital. This is why the NIM is arguably the most vital measure of WBC’s profitability. Among ASX’s top banking stocks, we calculated the average NIM to be 1.92% while Westpac Banking Corp’s line of credit was 1.9%, noting that it generated a return. loans below average compared to its peer group. This can happen for a number of reasons, which deserve to be investigated.

The reason analysts are studying NIM so closely is that Westpac Banking Corp made 83% of its total income (akin to income) just from loans last year.

Why Westpac Banking Corp’s ROE matters

Return on equity or simply “ROE” helps you compare a bank’s profit against its total equity, as shown on its balance sheet. The highest the ROE the best. Westpac Banking Corp’s ROE over the past full year was 7.3%, meaning that for every $ 100 of bank equity, it generated $ 7.30 in annual profit. This was below the industry average of 7.46%.

Know your downside in bank stocks like WBC

For Australian banks, the CET1 ratio (aka “common equity tier one”) is essential. CET1 represents the bank’s capital cushion that can be used to protect it against financial collapse. According to our figures, Westpac Banking Corp had a CET1 ratio of 11.1%. It was less than the industry average.

Westpac Banking Corp’s dividend valuations are convenient (and pretty easy!)

A dividend discount or DDM template is one of the most effective ways to create a projection of ASX bank stocks. To do a DDM, we need to come up with a projection of the bank’s dividends going into the future (i.e. the next full year dividend) and then apply a risk score. Suppose the WBC dividend payout increases at a constant rate every year in the future, between 2-3%. We will use multiple risk rates (between 6% and 11%) and then average the valuations.

According to this quick and simple DDM model, a valuation of WBC shares is $ 15.13. However, using an “adjusted” or expected dividend payment of $ 1.25 per share, which is the preferred metric because it uses expected dividends, the valuation rises to $ 21.24. The valuation compares to the current WBC share price of $ 21.35. Since the company’s dividends are fully franked, we may make an additional adjustment and valuation based on a “gross” dividend payment. Using gross dividend payments, which account for postage credits, the valuation projects at $ 30.35.

This means that while the WBC share price may seem expensive using our simple DDM model, do not make a decision based on this article. Please go now and consider all of the risks and ideas that we have presented here, including the benefit of rallying dividends and the positive impact of postage credits. Consider receiving our investment report by email for free (read on).


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