While banks collectively are not offering a lot of growth (right now), it’s easy to envisage that AI driven productivity improvements will change banking enormously over the coming years. A high volume, low margin business like banking is in a sweet spot to capture real value from this structural shift, and while things will take longer in the world of banking due to security and regulatory oversight, we have little doubt in concluding that AI will help to drive better returns from banks over time.
WBC is our No 2 pick in the banking sector at current levels ~$33, as they push forward with a multi-year reset to improve returns under new CEO Anthony Miller. From what we’ve seen so far, Westpac is the most credible re-rate story among the large Australian banks. The bank has a clear cost out path, which the market remains sceptical on, while we think their strategic pivot to business & institutional banking will help to improve revenue.
Supported by its almost 5% fully franked yield and with the RBA Cash Rate forecast to test 3% in the next year, it’s hard not to imagine ongoing support for WBC unless the Australian economy threatens to slip into a recession. Note that if WBC advances by more than 6%, then the ASX200 is likely to test 8,800 at the very least – only 3% higher.
- We can see WBC posting new highs into Christmas: MM is holding WBC in its Active Growth Portfolio.
MM is long and bullish WBC
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