Westpac

[Thomsens]

Westpac up $6 since xmas - what gives ? All time high of $39. What's driving the banks up at the mo? ANZ tracking it.

I plan to ditch WBC and go into Mighty River, since someone reported risk of property market collapsing in NZ.

[Thomsens]

Point taken. Then, what's wrong with selling now and buying back in when it dips below $30 say, which it can do from time to time ?

[BIRMANBOY]

Whos "someone"? I know nothing about property market but commonsense tells me that markets collapse when either there is too much available of whatever it is or there is no demand for whatever it is. So dont think there is too much available unless you are in some god forsaken backwater somewhere. Interest rates are low driving more interest in people trying to get onto property ladder. Dont you think it makes more sense to do your own research instead of listening to "someones"?
Westpac up $6 since xmas - what gives ? All time high of $39. What's driving the banks up at the mo? ANZ tracking it.

I plan to ditch WBC and go into Mighty River, since someone reported risk of property market collapsing in NZ.

[macduffy]

Bear in mind too that WBC's NZ property lending, while the biggest chunk of their business in NZ, represents only a part of WBC's total lending - at a guess, less than 15%, and that it is the parent shares that you are invested in, whether listed on the NZ or Aust register.

A more important consideration would be the health of the Australian property market, particularly in the bigger capital cities.

[Silverlight]

Westpac up $6 since xmas - what gives ? All time high of $39. What's driving the banks up at the mo? ANZ tracking it.

I plan to ditch WBC and go into Mighty River, since someone reported risk of property market collapsing in NZ.

The banks are driven by the continued search for yield, they are trading at undemanding forward earnings multiples, and as long as central banks around the world continue printing money which forces bond yields to stay low, income investors will continue to take on additional risk to get a liveable income stream.

Westpac generates 20% of their net profit from the NZ market, and mainly from interest margins, so while a property correction in NZ would effect their lending growth, it won't impact a great deal on their NZ profits, only through an increase in bad loans provisioning, let alone the entire bank profits.

However this does not mean you ignore the real risk to the banking sector from a correction in the Australian porperty market...


Edit: was typing the same time as macduffy... what he said :p

[winner69]

One way of looking at it ..... You'll prob get 20 MRP shares for every Westpac one .....that seems a good deal

[iKiwi]

It's driven by expectations of higher profits which will translate to higher dividends or a bonus dividend.

Read the recent valuation report on ASB.

- Retail investors are still aggressive buyers of bank equity as term deposits mature.

If you hold for the dividend then it's not a bad alternative to term deposit.

However, Westpac has run very hard over the past 18 months increasing 75% since August 2011, excluding dividends.

It's trading close to the upgraded A$33.00 fair value. If you have a solid gain since Xmas you might want to consider taking the profits.

[GTM 3442]

One way of looking at it ..... You'll prob get 20 MRP shares for every Westpac one .....that seems a good deal

On that basis, you'd get even more in ALF !

And even more in TRS !

[Thomsens]

Standard and Poor was the someone saying property may take a dive. See link below:

http://www.stuff.co.nz/business/money/8367191/Property-market-at-risk-of-sharp-correction

[BIRMANBOY]

I would take that in the context in which it was probably delivered....CYA (covering your arse) endemic in high profile companies trying to remain relevant.

"""Financial ratings agency Standard & Poor's says there is a significant risk of a property crash in New Zealand.
S&P, which has come in for criticism over its failures to adequately assess risk on many investments in the run-up to the Global Financial Crisis, said its "base case scenario" was for medium-term real estate prices continuing to stabilise at current levels. ""



Standard and Poor was the someone saying property may take a dive. See link below:

http://www.stuff.co.nz/business/money/8367191/Property-market-at-risk-of-sharp-correction

[bunter]

FWIW, WBC.AX just hit an all-time high, on dividend-adjusted prices. Was 34.27.

My system valuation is $54.46.

[macduffy]

Interesting, bunter!

Could you share your assumptions/calculations please?

Cheers

[skid]

Some have been predicting a NZ housing market crash for some years now ,but it just has'nt happened-but as some pointed out -its the OZ property market that is much more relevant and it seems to be in a much greater danger of a downturn.
If it was a crash however,it could affect NZ,although the Auckland area has a number of factors holding it up---If they build lots more houses quickly--interest rates increase-cut immigration(or change the laws) then would be the time to take notice of the NZ market.
There are also a spate of new banking regulations to take into consideration(They have just dropped the lucrative Oz Forex because of this)
In a nutshell--I wouldnt go panic selling a house in Auckland but I would keep an eye on the Oz property market+banking regulations,making everything harder= might be a good time to profit take------a bird in the hand....

[bunter]

Interesting, bunter!

Could you share your assumptions/calculations please?

Cheers
Total dividends over 10 years, given some growth (or shrinkage) factor; adjusted for current long-term interest rates.

If total dividends over 10 yrs, in today's dollars, are equal to half the share price, the system considers the share 'fairly valued'.

[bunter]

Still making new all-time highs. Round-number resistance at $A35 broken today. What next?

[macduffy]

Belated thanks, bunter, for yours of 28 January.

Seems that the key to this lies in the growth/shrinkage factor adopted but I assume that's a call based on a company's past performance - and a healthy dose of "judgement"?

Disc: I've held WBC since before their hiccups of the early '90's. Should have taken the plunge and bought up big then - but of course, didn't!

[bunter]

Still making new all-time highs. Round-number resistance at $A35 broken today. What next?

'Next' is apparently the next round number - went straight up to 35.96 today.

[bunter]

Seems that the key to this lies in the growth/shrinkage factor adopted but I assume that's a call based on a company's past performance - and a healthy dose of "judgement"?

Exactly - mainly past performance, a look at the management and the sector, and a number comes out...
Good results or good news and the number goes up. and vv.
Nothing too scientific.

[tim23]

Big close on asx!

[percy]

A good result today.
Surprised EPS were only down 2%,and although down 166 basic points, ROE was still excellent at 14.2%.

[macduffy]

A good result today.
Surprised EPS were only down 2%,and although down 166 basic points, ROE was still excellent at 14.2%.

Yes, I thought it was a pretty good result, all things considered. Surprised that the Aussie market has marked them down so heavily - 4% down, when I last looked.

[Lewylewylewy]

I'm surprised this hasn't given the confidence for a knock on effect to other Aussie banks

[macduffy]

I'm surprised this hasn't given the confidence for a knock on effect to other Aussie banks

It's had a knock on effect all right. All the other big four are down more than 3%!

[BlackCross]

Today, Westpac released its half-yearly results. The market didn’t like the numbers; as a result, the share price dropped around 5% at one point, to a low of $29.29.
That’s a very large one-day move for a bank.
What was the problem? On the surface things didn’t look too bad. Cash earnings rose 3%, while revenues increased 5%.
But the main indicator of profitability, return on equity (ROE), fell 166 basis points year-on-year, to 14.2%.
In my experience, ROE is the primary driver of stock prices. When ROE expands (for example, if it moves from 10% to 12%) the share price will rise. When the ROE falls (as it did in Westpac’s case) the share price will fall.
You can analyse all the moving pieces of the banks result, but it all condenses into the ROE. ROE simply measures how efficiently the company is using shareholders’ funds.
One thing that provides an artificial boost to ROE is debt, and Aussie banks are highly leveraged. The bank regulator, APRA, is attempting to address this high leverage by requiring the banks to hold higher levels of capital. Doing so has the effect of reducing ROE — and the share price in turn.
What now for WBC?This isn’t a new development. The market has been pricing in a lower level of profitability for the banks for some time now. You can see this in the performance of WBC over the past year. The chart below shows the stock peaked a year ago, at $40 per share. It’s now trading just under $30.

http://www.dailyreckoning.com.au/wp-content/uploads/2016/05/Westpac-Bank-Greg-1024x622.gif (http://www.dailyreckoning.com.au/wp-content/uploads/2016/05/Westpac-Bank-Greg.gif)Source: BigChartsThe trend remains down, and a break below the recent lows around $28 suggests the fundamental backdrop is getting worse for Westpac.
There was a hint of this in the half-yearly result. For years, the powerhouse for the bank has been the consumer banking division, which is basically the home loan division. In the year to 31 March, 2016, cash earnings grew a very healthy 16%. But most of that growth came in the first half. Second-half growth slowed to just 5%.
Given the slowdown, and the ongoing downtrend in the share price, Westpac is a stock to avoid. A break below $28 will be a bearish development, suggesting the environment for banks is getting worse.
Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.
If you’d like to know more, click here .
Greg Canavan
Editor, The Daily Reckoning

http://www.dailyreckoning.com.au/why-the-westpac-bank-share-price-dropped-today-asxu/2016/05/02/

[Valuegrowth]

I am slightly bearish on the banking sector in Australia. Their share prices should adjust in line with earnings.

http://www.bloomberg.com/news/articles/2016-05-02/westpac-warns-of-rise-in-consumer-defaults-on-mining-slowdown

Westpac Warns of Rise in Consumer Defaults on Mining Slowdown

[Tomtom]

Another Bloomberg article on the Australian banking sector: http://www.bloomberg.com/news/articles/2016-05-09/souring-aussie-resource-debts-add-to-pressures-on-bank-earnings