Next month, investors will have their eyes on the Westpac Banking Corp (ASX: WBC) share price when the banking giant releases its highly anticipated half year results.
Ahead of the release, let's take a look to see what the market is expecting from Australia's oldest bank on 9 May.
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What is the market expecting from Westpac's half year results?
According to a note out of Bell Potter, its analysts are expecting a big improvement in cash earnings over the second half of FY 2021.
The broker has pencilled in cash earnings of $3.11 billion, up from $1.82 billion during the second half but down 12% over the prior corresponding period.
It said: "We expect cash earnings of $3.11bn in 1H22e. This compares with $1.82bn in 2H21 (the miss being revenue shortfalls – i.e. largely lower Consumer other banking income – and higher overall operating expenses including a slew of one-off expenses) and $3.54bn in 1H21. The negative trend should then reverse and the 1H22e number appears to be in line with the 1Q22 cash earnings of $1.58bn."
Bell Potter expects this to allow the Westpac Board to declare a fully franked 59 cents per share interim dividend, which represents a 1 cent increase on last year's interim dividend.
What about its margins?
One thing that has been weighing heavily on the Westpac share price this year has been margin concerns. In light of this, its net interest margin (NIM) will be an area of focus for investors.
Bell Potter expects further weakness in its margins and is forecasting a NIM of 1.86%.
The broker commented: "We expect NIM to be 1.86%, falling another 5bp since 2H21a. This was again mainly due to higher liquidity, pressure on mortgages – consumer and business lending – and growth in lower spread fixed rate mortgages. On the other hand, the bank continues to enjoy cheaper funding rates especially in deposits. NIE is expected to be $7.93bn, lower than the annualised figure of $8.36bn in 1Q22a, and WBC still expects FY22e NIM to decline further as a result."
Costs will be a focus
Another area of focus will be Westpac's costs. Especially given the bank's bold plan to cut its operating costs down to $8 billion by FY 2024.
Bell Potter doesn't believe the bank will be able to achieve its cost cutting targets and appears to believe this will start to be evident with this result. Though, it acknowledges that even a cut to $9 billion would be a big reduction.
"Operating expenses – We expect this to be $5.45bn in 1H22e (54% CIR and down from $5.98bn in 1H21a and a massive $7.30bn in 2H21a) and broadly in line with $2.70bn in 1Q22a. As suggested and excluding notable items, cost reduction was $191m in 1Q22 mainly from cost resets including lower FTEs and third party contractors (by more than 1,100, and was despite further investment in risk management activity)."
"We think there may be more cost savings in this space but the $8.00bn as suggested by the bank in FY24e is highly unachievable we think. Our forecast is for $9.00bn operating expenses instead that is still a large decrease from the current environment."
Is the Westpac share price in the buy zone?
Bell Potter is sitting on the fence with the Westpac share price.
The broker has a neutral rating and $25.00 price target on the bank's shares. This suggests modest upside of just 3.5% for investors.
