At today's Westpac Banking Corp (ASX: WBC) share price, the bank ranks as one of Australia's biggest companies. But how much are Westpac shares worth in April?
Westpac's current share price is $24.10, giving it a market capitalisation of $84.4 billion. To arrive at that number, the share price is multiplied by all of the Westpac shares that have been issued to investors.
But, what do investors think the underlying value of Westpac is?
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Expert ratings on the Westpac share price
One of the latest brokers to issue an opinion on the big four ASX bank is Macquarie. It's 'neutral' on the bank, with a price target of $22.50. That implies a decline of more than 6% over the next year. The broker is concerned about challenges for the net interest margins (NIM) with strong competition across the industry.
Another of the more recent ratings was also not a bullish opinion. Morgan Stanley is 'equal-weight' on Westpac as well. Morgan Stanley has a share price target of $22.40, suggesting a possible decline of around 7%. The broker acknowledges that rising interest rates could be a positive for the NIM, but competition remains fierce and bad debts could increase.
However, Westpac is Citi's top major banking pick, with the broker preferring it to Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group Ltd (ASX: ANZ), and National Australia Bank Ltd (ASX: NAB). Citi's price target on Westpac is $27, implying a possible rise of more than 12% for the Westpac share price.
What do we know of Westpac's recent operating performance?
The latest we've heard from the bank was its FY22 first quarter for the three months to 31 December 2021. It reported a statutory net profit after tax (NPAT) of $1.82 billion, which was up 80% on the quarterly average of the second half of FY21.
Cash earnings of $1.58 billion were up 74%. Excluding notable items, cash earnings rose 1%.
Lending was up $5 billion, or 0.7%, across institutional, mortgages, and New Zealand.
The NIM was 1.91%, down eight basis points, due to competition and higher liquid assets, according to the bank.
Expenses came to $2.7 billion, which was 26% lower. However, excluding notable items, expenses were down 7%.
Westpac booked an impairment charge of $118 million, mostly from increased provision 'overlays' reflecting continuing COVID-19-related uncertainty.
The bank did say that asset quality metrics "continue to improve".
At the end of the FY22 first quarter, Westpac said that it had a "strong" common equity tier 1 (CET1) capital ratio of 12.2%. With the release of the first quarter, the Westpac chief financial officer Michael Rowland said:
We have made a sound start to the year and we are seeing the cost benefits of our simplifications programs. The environment remains highly competitive and we continue to see pressure on margins.
Given this, we are bringing forward our simplification plans and changing our operating structure to improve efficiency and move more of our people closer to the customers they support.
Westpac share price valuation
Using Macquarie's estimates, the Westpac share price is valued at 15x FY22's estimated earnings and 14x FY23's estimated earnings.
Macquarie's guess for the FY22 grossed-up dividend yield is 7.25%.
