Shares of the ASX-listed Westpac Banking Corporation (AU:WBC) gained over 2%, as of writing, after the company released its trading update, showcasing higher Q3 profit. Westpac reported an increase of 6% in its Q3 unaudited net profit of AU$1.8 billion as compared to the quarterly average in H1 2024.
Westpac Banking Corporation is a leading financial institution in Australia that provides services to around 14 million customers.
Key Takeaways from Westpac’s Q3 Update
Westpac saw a boost in Q3 profit due to increased returns from capital and hedged deposits, with the bank leveraging financial tools to mitigate interest rate volatility. This implies that the current interest rate conditions are likely supporting Westpac’s growth.
The bank’s net interest margin (NIM) stood at 1.92%, with Core NIM increasing by 2 basis points to 1.82%.
On the flip side, Q3 profit was slightly offset by rising expenses and bad loans. Expenses rose by 2% due to increased investment spending, primarily concentrated in the second half of 2024. Additionally, high interest rates and rising cost-of-living pressures are affecting households’ ability to make timely loan repayments and impacting the performance of Australian banks. Banks are also facing intense rivalry in the mortgage sector to offer competitive rates on home loans.
Analysts Weigh in on Westpac’s Q3 Performance
After the Q3 update, analysts at Goldman Sachs and Citi confirmed their Sell ratings on WBC stock, predicting a downside of 15% and 18.5%, respectively. Nonetheless, they were impressed by Q3 numbers overall.
Citi analysts stated that a positive market reaction was expected due to the improvement in core NIM, which contributed to increased revenue.
Analyst Andrew Lyons from Goldman Sachs raised his price target on the stock from AU$24.1 to AU$25.84. Lyons noted that the results were better than expected due to improved bad debt deductions and controlled expenses. However, he mentioned that ongoing inflation pressures and modest earnings outperformance didn’t fully address concerns. Additionally, Westpac’s Common Equity Tier 1 (CET1) ratio of 12% fell short of expectations by 9 basis points.
What Is the Forecast for Westpac Shares?
Analysts hold a bearish view on Westpac shares, as reflected in its Moderate Sell rating. According to TipRanks’ analyst rating consensus, the stock has received six Sells, two Holds, and one Buy recommendation in the past three months. The Westpac share price target is AU$24.74, which is 18.5% lower than the current share price.
Year-to-date, WBC stock has gained 32% in trading.
