If you had to guess which ASX shares have produced returns stronger than 40% in 2024, you'd probably choose some leading tech shares and other growth shares.
Westpac Banking Corp (ASX: WBC) shares have also delivered a great return this year – up 43%.
It's intriguing to me that the ASX bank share has done so well in 2024, considering its FY24 results, which said the net profit after tax (NPAT) fell 3% to $7 billion due to competition on mortgage pricing and higher costs from inflation.
The strong Westpac share returns are great for shareholders, but that's the past. What could happen over the upcoming year?
Let's have a look at what some experts think could happen with the ASX bank share.
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Views on the ASX bank share
Let's start with some views from Darren Thompson, head of asset management at Equity Trustees Asset Management. He said:
The outlook for both earnings (EPS) and dividends (DPS) for the domestic market is heavily weighted to the performance of banks and resources.
Bank earnings are anticipated to be broadly flat due to a combination of modest credit growth, ongoing competition restricting net interest margins, ongoing cost pressures and already cyclically low bad debt provisions.
I think those are reasonable assumptions to make. Ultimately, he's suggesting banks like Westpac may see generally flat earnings. Typically, higher profit is required to raise a valuation, but we've seen Westpac shares climb 43% despite a 3% profit decline in 2024.
Now, let's look at what the broker UBS thinks of the ASX bank share.
UBS believes there's scope for further capital management, either through share buybacks or special dividends, because the franking balance is approximately $3.5 billion. The broker is suggesting a share buyback of $1.7 billion in FY25 and $1.5 billion in FY26.
The broker also pointed out that Westpac's underlying net interest margin (NIM) trends "continue to look encouraging", though cost growth is a headwind. Competitive pressures in home lending are "more than offset by higher earnings on capital and deposits."
UBS has a neutral rating on Westpac shares and a price target of $33. This implies little movement over the next year.
Earnings forecast for Westpac shares
UBS is currently predicting that in the 2025 financial year, Westpac could generate $22 billion of revenue, $10 billion of pre-tax profit and $7 billion of net profit. This is very similar to what the ASX bank share generated in FY24.
On the broker's numbers, the Westpac share price is currently trading at approximately 17x FY25's estimated earnings. UBS also said it's trading at more than 16x its two-year forward forecast earnings, compared to the 15-year historical average of 12.3x.
In other words, it's valued noticeably higher than it has been in the last decade and a half.
