We covered WBC’s poorly received trading update here yesterday, the almost 6% fall took a whopping 25-points off the ASX200 all on its own. On balance we thought the result was “ok”, but as we flagged last week, the banks are likely to be cautious around the struggling Australian property market.
Westpac’s valuation looks mixed: On a forward P/E of 16.8x, it trades at a premium to most global peers, including JPMorgan, HSBC, BNP Paribas and Mitsubishi UFJ, reflecting relatively high expectations for earnings. However, on a price-to-book multiple of 1.72x, it sits closer to the middle of the pack, well below RBC, JPMorgan and HSBC.
In our view, the valuation challenge is more about earnings than the balance sheet. Following Westpac’s softer Q3 update, the market may begin to question whether its earnings multiple remains justified. The concern is that the bank’s valuation could mean-revert similarly to the housing market.
- We wouldn’t be surprised to see WBC re-test below $34 as short-term confidence weighs on the stock.
MM is long and cautiously bullish towards WBC
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