Westpac Banking Corp: Model update

About the author:

Author name:

By Azib Khan

Job title:

Former Senior Analyst

Date posted:

27 April 2021, 6:00 PM

Sectors Covered:

Banks

• Westpac Banking Corp (ASX:WBC) has announced that its cash earnings in 1H21 will be reduced by $282m (after tax) due to notable items. Of the $282m in notable items, $212m were announced as part of the 1Q21 trading update, with the remaining net cash earnings impact of $70m occurring in 2Q21.
• We have consequently adjusted our 1H21 forecasts, resulting in a cash EPS reduction of 1.4% for FY21F. We have made no changes to our earnings forecasts for the outer years.
• Retain Add recommendation and target price (login to view). Our views on WBC and the major banks sector are detailed in our report titled Banking on further share price upside. 

Details of notable items

The notable items after tax in 1H21 include:

• Additional provisions for customer refunds, payments, associated costs, and litigation provisions of $220m
• Write-down of capitalised software and other intangibles of $115m
• Costs associated with ending the Group’s relationship with IOOF of $56m
• Write-down of goodwill related to Lenders Mortgage Insurance of $84m
• An accounting loss on sale of Westpac Pacific along with transaction costs and payments associated with divestments of $113m.

These losses have been partly offset by:

• A net gain on the revaluation of the Group’s investment in Coinbase Inc of $288m
• A gain on sale of the Group’s holding in Zip Co Ltd of $18m.

Find out more

We outline our views on WBC and the major banks sector in our 'Banking on further share price upside' report. You can download the full research note on WBC or view our major banks report using the buttons below.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.