Day: 31 October 2021

The Telstra Corporation Ltd (ASX: TLS) share price has started the week on a positive note.

At the time of writing, the telco giant’s shares are up 1.5% to $3.88.

This latest gain means Telstra’s shares are now up approximately 29% in 2021.

Can the Telstra share price keep rising?

The good news for investors is that it may not be too late to buy the telco’s shares.

This is because one leading broker still sees plenty of upside for the Telstra share price over the next 12 months.

A recent note out of Morgans reveals that its analysts have retained their add rating and lifted their price target on the company’s shares to $4.55.

Based on the current Telstra share price, this implies potential upside of 17% for investors before dividends. This increases to just over 21% if you include the 16 cents per share dividend Morgans is forecasting in FY 2022.

Four reasons Telstra could be a buy

Morgans is positive on the Telstra share price for four key reasons.

The first, it explained, is: “Industry dynamics have turned positive (NBN and mobile prices are increasing after 5 years of decline; TLS’s targets imply they continue to rise).”

“The SOTP [sum of the parts] for TLS is worth more than the current share price (and steps to release this value are underway; albeit timing is unclear),” Morgans reveals as another reason.

The broker is also positive on the recent deal with the Federal Government to acquire the Digicel Pacific business.

It commented: “While PNG is not without risk, this deal shows management’s ability to sensibly manage risk, and it could create further upside, all going to plan.”

The final reason Morgans is bullish on the Telstra share price is its growth outlook. After years of earnings declines, the broker notes that Telstra is well-placed for growth in the coming years.

“Underlying earnings returned to growth in 2H21 and should continue growing out to FY25,” it concluded.

All in all, this could make Telstra worth considering in November.

The post 4 reasons the Telstra (ASX:TLS) share price could be in the buy zone appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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As a long-term investor, it is incredibly important to see companies, such as CSL Limited (ASX: CSL), and its shares, as more than flickering ticker codes with an erratic dollar value. Instead, these listed entities are collections of people with a shared mission.

Part of what makes a company valuable is its mission and what it does to work towards that goal. That being said, it can be easy to lose sight of what a company does that provides shareholders with a return. Even for a company with the stature of CSL, Australia’s second-largest listed company by market capitalisation, understanding the money-making business activity can be lost in the pile of information.

For this reason, we’ll be diving into how CSL shares actually earn their keep in the present day.

How does CSL make money?

Although CSL isn’t quite a ‘household’ name, its products have touched the lives of many people. The company’s roots stem all the way from 1916 when it was known as Commonwealth Serum Laboratories, an Australian government-owned entity involved in vaccine manufacture.

While its history is extensive and incredibly interesting, spattered with a long list of monumental breakthroughs in modern medicine, we are here to cover how the CSL we know today makes money.

The publically-listed and privatised version of CSL that Aussies invest in these days has two distinct business operations. These two businesses include CSL Behring and Seqirus.

Firstly, CSL Behring is a provider of medicines to treat people with rare and serious diseases. These treatments are across multiple areas of immunology, haematology, cardiovascular, and transplant therapeutics. In terms of how much money the Behring business ‘Beh-rings’ in, it is more than 80% of the company’s US$10.3 billion of annual revenue. This is derived through the sale of its broad range of products including tetanus shots, coagulants, etc. to more than 100 countries.

Secondly, the Seqirus side of CSL’s operations is focused on influenza vaccines. In fact, Seqirus is one of the leading providers of ‘flu shots in the world. However, investors in CSL shares mightn’t know it manufactures a unique range of products made in the national interest. These products include antivenoms and Q fever vaccines.

In FY21, Seqirus pulled in total revenue of $1.736 billion, an increase of 30% year on year. This was due to the strong demand for CSL’s influenza vaccines to reduce strain on hospitals during COVID-19.

How have CSL shares performed?

The CSL share price has been a solid performer over long time periods. For example, in the last five years, the CSL share price has gained 208%. This represents a compound annual growth rate (CAGR) of 25.28%, which far outpaces the S&P/ASX 200 Index (ASX: XJO) CAGR of 7.22% in the last five years.

However, CSL returns have been more modest over the past 12 months. In the last year, the CSL share price has climbed 6.18% higher, significantly lower than its historical performance.

The post Own CSL shares? Here’s how the company actually makes money appeared first on The Motley Fool Australia.

More reading

• Top ASX shares to buy in November 2021
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• What Goldman Sachs is saying about the CSL (ASX:CSL) share price after its R&D update
• The CSL (ASX:CSL) share price is up just 3% so far in 2021. Here’s why
• ASX 200 (ASX:XJO) midday update: BHP’s Q1 update, CSL’S R&D update

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Westpac Banking Corp (ASX: WBC) share price has come under significant pressure on Monday.

In morning trade, the banking giant’s shares are down over 6% to $24.10.

Why is the Westpac share price sinking?

Investors have been selling down the Westpac share price today after its full year results fell short of expectations.

In case you missed it, Australia’s oldest bank reported a 138% increase in statutory net profit to $5,458 million and a 105% jump in cash earnings to $5,352 million. This allowed Westpac to declare a fully franked final dividend of 60 cents per share and announce a $3.5 billion off-market share buyback.

However, despite its cash earnings doubling in FY 2021, it was still short of the consensus estimate of $5.42 billion.

What else?

Also falling short of expectations and weighing on the Westpac share price was its off-market share buyback. While Westpac announced a significant $3.5 billion buyback, it was lower than the market was forecasting.

The team at Morgans, for example, were expecting Westpac to announce a buyback of $5 billion with its results, whereas Goldman Sachs was forecasting a $4 billion share buyback.

Goldman also notes that the bank’s expenses and net interest margin (NIM) were disappointing.

It commented: “WBC’s 2H21 NIM was down 10 bp hoh to 1.99% (1.98% ex notables) and was lower than our expectations (GSe, -6 bp to 2.03%).”

“On outlook, WBC notes that FY22 Margins are expected to be lower and highlighted exit margin ex. treasury & markets at 1.80% (1.87% Sep-21 half average),” the broker added.

As for expenses, Goldman said: “WBC 2H21 reported expenses were up 22% hoh, 5% higher than GSe. Excluding notable items, 2H21 expenses were up 9% hoh. WBC attributes most of the increase to higher staff expenses (+18%, +14% ex notables) due to the additional 1,396 FTE over the half on higher resourcing needs to improve risk management and compliance and to support customers impacted by hardship.”

All in all, a disappointing result from the banking giant.

One positive, though, is that the Westpac share price is still up 23% in 2021 despite today’s weakness.

The post Westpac (ASX:WBC) share price sinks 6% despite doubling cash earnings appeared first on The Motley Fool Australia.

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• Westpac (ASX:WBC) share price on watch amid earnings jump and $3.5bn buyback
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Motley Fool contributor James Mickleboro owns shares of Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Ausnet Services Ltd (ASX: AST) share price has jumped in early trade as the company agrees to terms set out in an offer from Brookfield Asset Management to acquire all of its outstanding shares.

Ausnet confirmed the offer values its shares at $2.65 each, a step up from Brookfield’s previous offer of $2.50 around a month ago.

At the time of writing, Ausnet shares are trading for $2.57 apiece, up 4.05% on their opening price.

What did Ausnet announce today?

Ausnet’s announcement notes that it agreed to the terms set out in Brookfield’s proposal and has subsequently entered into a scheme implementation deed.

Brookfield is representing a consortium of investors including Sunsuper Superannuation Fund, Alberta Investment Management Corporation, and two large institutional investors from Ontario, Canada.

Back in September, Brookfield first made its proposal when it offered $2.50 per Ausnet share to acquire the company. At the time, this represented a 26% premium to Ausnet’s share price of $1.98.

The revised offer now puts Brookfield at an enterprise value of $17.8 billion, equating to $2.65 per share for its available equity.

As such, the offer is roughly a 7% premium to Ausnet’s closing price on Friday and a 34% bump on when it first received the offer on 20 September.

As an additional sweetener, if the scheme is implemented after March next year, Ausnet shareholders will get “an additional consideration from Brookfield of $0.000260274 per share for each day after 31 March 2022” that it is not implemented.

One large Ausnet shareholder, Singapore Power – which owns 32.74% of Ausnet’s shares – is in support of the proposal and intends to vote in favour, according to the announcement.

Curiously, one caveat in Brookfield’s offer is that Ausnet must cease all discussions with all other competing parties.

Consequently, it has terminated its due diligence process with APA Group (ASX: APA) after APA had offered a cash and scrip deal on a valuation of $2.60 per Ausnet share in a competing bid last month.

Although, Ausnet did state that “if APA wishes to make a further proposal, (it is) free to do so, as is any other party”.

The company needs to tread carefully, however, as it will be “required to pay Brookfield a break fee of $101,674,267 (or 1% of its equity value) if the Ausnet board ultimately recommends a competing, superior proposal”.

Speaking on the announcement, Ausnet chair Peter Mason said:

For the last several weeks the Board has been extremely focused on ensuring a competitive process. This has resulted in a binding proposal from Brookfield at a price that provides full value to all AusNet shareholders. The binding proposal, secured at a significant premium to where the share price was trading prior to the first of the six proposals being received, deserves to be put before our shareholders for their consideration.

What’s next for the Ausnet share price?

Shareholders can expect to receive the scheme booklet before the end of March 2022 when they will vote on the scheme.

Given that Singapore Power and its board have already pushed to approve, many are curious to see the outcome from the company’s remaining shareholders.

It’s been a year of outsized returns for Ausnet after the onset of this acquisition saga. The Ausnet share price has gained 41% since January 1, extending its return in the last 12 months to 23.5%.

The post Ausnet (ASX:AST) share price jumps as Brookfield offers $2.65/share appeared first on The Motley Fool Australia.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The IGO Ltd (ASX: IGO) share price is on the move on Monday morning.

At the time of writing, the battery materials focused mining company’s shares are up 4% to $10.03.

Why is the IGO share price storming higher?

Investors have been bidding the IGO share price higher this morning following the release of its first quarter update.

For the three months ended 30 September, IGO’s Nova production was within guidance, with nickel, copper, and cobalt production of 6,889 tonnes, 3,023 tonnes, and 253 tonnes, respectively. In addition, Nova’s cash costs of $1.99 per payable pound was better than guided to.

In respect to its financials, IGO’s sales revenue was 29% lower quarter on quarter to $189.2 million. This was driven by the divestment of the Tropicana Gold Operation on 31 May 2021.

It was a similar story on the bottom line, with IGO’s net profit after tax falling 90% quarter on quarter to $46 million. This was due to the previous quarter including a post-tax gain on the sale of the Tropicana Operation of $385 million.

At the end of the period, IGO’s total cash stood at $552 million. This is an increase of $24 million since the end of June and does not include its undrawn debt facilities of $450 million.

Management commentary

IGO’s Managing Director and CEO, Peter Bradford, commented: “We are pleased to have commenced FY22 strongly with a solid quarter of safe performance from Nova. In parallel, good progress was achieved within the lithium joint venture, with key growth projects being advanced during the first reporting period following the successful completion of IGO’s investment in the lithium joint venture with Tianqi Lithium Corporation.”

“At the Greenbushes Lithium Mine, Chemical Grade Plant 2 has been commissioned, Tailings Retreatment Plant construction activity was progressed with commissioning expected in early 2022, and the EPCM contract for the design and engineering for Chemical Grade Plant 3 was awarded to Lycopodium Limited.”

“At the Kwinana Refinery commissioning of Train 1 has been progressed with a key milestone achieved during August with the first lithium hydroxide produced,” he added.

Mr Bradford notes that the above developments come at a time when lithium demand is increasing strongly, driving prices higher. This could bode well for the company’s future and the IGO share price in 2022.

The IGO share price is now up 49% in 2021.

The post IGO (ASX:IGO) share price storms higher on Q1 update appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Macquarie Group Ltd (ASX: MQG) share price has returned from its trading halt and is dropping.

In early trade, the investment bank’s shares are down 2.5% to $193.26.

Why was the Macquarie share price halted?

The Macquarie share price was placed in a trading halt last week so it could undertake a $1.5 billion institutional placement following its half year update.

Macquarie’s Group Chief Executive Officer, Shemara Wikramanayake, explained: “Having deployed $5.5 billion of capital over 2H21 and 1H22, we continue to see a strong pipeline of opportunities. Raising new capital provides us with additional flexibility to invest in new opportunities where the expected risk-adjusted returns are attractive to our shareholders, while maintaining an appropriate capital surplus.”

This morning the Macquarie share price has returned to trade after announcing the successful completion of the placement.

According to the release, the placement was conducted by way of a bookbuild and will result in the issue of 7.7 million new fully paid ordinary shares at a price of $194.00 per new share. This represents a discount of just 1.9% to the Macquarie share price prior to its halt.

Ms Wikramanayake commented: “We are very pleased with the success of the Placement and the strong signal of support delivered from Australian and international institutional shareholders. Macquarie remains committed to investing in the growth of our businesses in a disciplined manner.”

A share purchase plan will soon follow, providing shareholders with the opportunity to apply for up to $30,000 of shares. This will be offered at the lower of the placement price (adjusted for the interim dividend) or a 2% volume weighted average price during the five days prior to the closing date of the share purchase plan.

Half year results impress

It’s not often that a capital raising is undertaken at such a small discount to a company’s current share price.

However, Macquarie was able to achieve this after impressing the market with its half year result.

For the six months ended 30 September, the investment bank reported a first half net profit of $2,043 million. This was double what it recorded in the prior corresponding period and in line with the second half of FY 2021. This allowed the Macquarie Board to declare a partially franked interim dividend of $2.72 per share.

The result went down well with the team at Citi. This morning it upgraded the investment bank’s shares to a buy rating with a $226.00 price target.

Despite today’s decline, the Macquarie share price is still up almost 40% in 2021.

The post Macquarie (ASX:MQG) share price falls after completing $1.5bn capital raising appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Due to a disappointing finish to the month, the S&P/ASX 200 Index (ASX: XJO) recorded a small monthly decline in October and finished the period at 7,323.7 points.

While a good number of shares dropped with the market, some fell more than most. Here’s why these were the worst performing ASX 200 shares last month:

Whitehaven Coal Ltd (ASX: WHC)

The Whitehaven Coal share price was the worst performer on the ASX 200 last month with a decline of 22.3%. Investors were selling the coal miner’s shares amid a pullback in coal prices during the month. This follows reports in China that coal producers in the country have agreed to observe a price ceiling for thermal coal ahead of the winter heating season.

EML Payments Ltd (ASX: EML)

The EML Payments share price wasn’t far behind with a disappointing 21.3% decline during the month. Investors were selling the payments company’s shares following the release of an update on regulatory action by the Central Bank of Ireland (CBI). The CBI revealed that it is planning to take action against EML’s PFS Card Services (Ireland) business. While no financial details have been provided by EML, management warned that the potential directions “could materially impact the European operations of the Prepaid Financial Services (PFS) business.”

Codan Limited (ASX: CDA)

The Codan share price was out of form and sank 19.3% in October. All of this decline came in the final week of the month following the release of the technology company’s annual general meeting update. Investors appear to have been concerned with comments regarding its softer growth outlook. Management also highlighted that COVID-19 tailwinds contributed $15 million to $20 million of sales in FY 2021. These tailwinds are unlikely to be repeated in FY 2022.

Pendal Group Ltd (ASX: PDL)

The Pendal share price was a poor performer and tumbled 17.4% over the period. Investors were selling the fund manager’s shares following the release of its latest funds under management (FUM) update. For the September quarter, Pendal reported a large increase in its FUM. However, this increase was driven by a recent acquisition. Excluding this, Pendal reported net fund outflows of $2.3 billion during the three months.

The post These were the worst performing ASX 200 shares in October appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended EML Payments and Netwealth. The Motley Fool Australia owns shares of and has recommended EML Payments and Netwealth. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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A disappointing end to the month led to the S&P/ASX 200 Index (ASX: XJO) finishing the period with the smallest of monthly declines at 7,323.7 points.

The good news is that this didn’t stop a number of shares from charging higher in October. Here’s why these were the best performing ASX 200 shares last month:

Perenti Global Ltd (ASX: PRN)

The Perenti share price was the best performer on the ASX 200 last month with a 23.6% gain. This appears to have been driven by a positive reaction to the mining services company’s annual general meeting. At the meeting management retained its guidance and spoke positively about the future, noting that investments have been made to support its sustainable growth. In response to the meeting, Macquarie retained its outperform rating and lifted its price target to $1.10.

Netwealth Group Ltd (ASX: NWL)

The Netwealth share price wasn’t far behind with a gain of 22.7% during the month. Investors were fighting to buy the investment platform provider’s shares in October after the release of a strong first quarter update. Netwealth reported record first quarter net inflows of $4 billion, which took its funds under administration (FUA) to $52 billion. In response, Ord Minnett retained its buy rating and lifted its price target to $19.50.

Silver Lake Resources Limited (ASX: SLR)

The Silver Lake Resources share price was on form and charged 21.9% higher over the period. This appears to have been driven by a strong quarterly update by the gold miner. Silver Lake reported record quarterly gold production of 31,033 ounces at its Deflector operation. This took its group quarterly gold production to 64,947 ounces. In light of this, management believes it is well-positioned to deliver its FY 2022 group gold sales guidance of 235,000–255,000 ounces.

GUD Holdings Limited (ASX: GUD)

The GUD share price was a strong performer and rose 21.4% in October. There were a couple of catalysts for this strong gain. One was the release of a trading update at the Citi Australia & NZ Investment Conference. GUD revealed that demand for its products has remained resilient despite widespread and protracted lockdowns. As a result, GUD’s revenue and EBIT are currently tracking in line with management’s expectations. In addition, late on in the month, the company announced an agreement to acquire specialist lighting company Vision-X for US$53 million.

The post These were the best performing ASX 200 shares in October appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Netwealth. The Motley Fool Australia owns shares of and has recommended Netwealth. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) (Soul Patts) share price may be one worth considering for a few different reasons.

This investment conglomerate is one of the oldest businesses on the ASX, having been around for almost 120 years.

Its historical performance shows outperformance of the index over the last five, ten and twenty years.

But there could be good reasons to continue to think about this business:

Lower price

A lower price can be an attractive thing when considering to buy shares of a business. A cheaper price doesn’t always mean better value, however if the underlying business has not changed then that could signal that it’s an opportunity.

Over the last month the Soul Patts share price has fallen by almost 15%.

It may be worth keeping in mind that there is an underlying portfolio value of Soul Patts because of all of its investments in businesses like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW) and New Hope Corporation Limited (ASX: NHC). That particular trio of companies are investments that Soul Patts has held for many years when they were much smaller businesses.

Increasing diversification

Soul Patts is working on becoming an even more diversified business with continuing growth potential.

The investment conglomerate aims to have a portfolio of assets which generate reliable cashflow through market cycles which serves to protect downside in market corrections.

It also looks to invest for the long-term with a disciplined and value-focused approach to investing through market cycles to deliver returns.

Soul Patts’ investment style allows it to invest in and support companies from an early stage and grow with them over the long-term. It can invest in various asset classes such as listed equities, private equity, venture capital, property, structure credit and cash.

The business has been investing in new areas in recent years. The investment conglomerate has been investing in agriculture and luxury retirement living.

However, after the recent acquisition of the listed investment company (LIC) Milton, it is now looking at other areas. The Milton CEO and managing director has become the new chief investment officer of Soul Patts. Mr Brendan O’Dea has had a number of roles, including being the chief operating officer of Citigroup’s Pan Asian Equities, head of Japanese equities and head of US equity proprietary investments.

Soul Patts outlined it is looking to build around platforms for growth. Some of the key thematics that it’s looking at includes education, financial services, agriculture, energy transition and health and ageing. The investment conglomerate noted the sell down of some of Milton’s large cap shares will be used for private markets, global shares, property, ‘structured yield’ and ‘real assets’.

Dividend record

One of the key objectives of Soul Patts is to deliver a consistent growing dividend. It has been successful with this goal for over 20 years. The company is the only one in the All Ordinaries Index to have achieved this growth record.

Soul Patts believes that the merger with Milton will allow for higher cash generation from increased portfolio dividends.

In FY21, it continued its dividend growth streak with an increase of the total dividend by a further 3.3%.

At the current Soul Patts share price, it has a grossed-up dividend yield of 2.7%.

The post 3 reasons why the Soul Patts (ASX:SOL) share price could be a buy appeared first on The Motley Fool Australia.

More reading

• 2 ASX dividend shares that could be buys in November 2021
• Why has the Soul Patts (ASX:SOL) share price tumbled 16% in a month?
• Soul Pattinson (ASX:SOL) share price wobbles as company touts track record
• Can the Brickworks (ASX:BKW) share price hit $30 by Christmas?
• Own Brickworks (ASX:BKW) shares? Here’s what you’re invested in

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Brickworks. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended TPG Telecom Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Westpac Banking Corp (ASX: WBC) share price will be one to watch on Monday.

This follows the release of the banking giant’s full year results this morning.

Westpac share price on watch amid strong profit growth and share buyback

• Statutory net profit up 138% year on year to $5,458 million
• Cash earnings up 105% to $5,352 million
• Cash earnings per share up 102% to 146 cents
• Net interest margin (NIM) down 4 basis points to 2.04%
• Return on equity (ROE) up 372 basis points to 7.6%
• CET1 capital ratio up 119 basis points to 12.32%
• Fully franked final dividend of 60 cents per share
• $3.5 billion off-market share buyback

What were the drivers of this result?

Westpac’s Consumer business performed positively in FY 2021, reporting a 12% increase in cash earnings to $3,081 million. This was driven largely by an impairment benefit of $125 million compared to a charge of $1,015 million in FY 2020. In addition, mortgages increased $19.1 billion or 5% over the year but margins decreased 3bps driven by competitive pricing to attract and retain customers, portfolio mix effects, and a decline in personal lending.

The Business segment delivered a 144% increase in cash earnings to $1,789 million. This was also due largely to an impairment benefit of $484 million, compared to an impairment charge of $1,371 million in FY 2020. Also supporting its result was a $268 million turnaround in notable items. Excluding notable items, net interest income was down $416 million from an 11bp decrease in margins and a 5% decrease in lending.

The Westpac Institutional Bank business was a drag on the company’s result, recording a loss of $670 million for FY 2021 compared to a profit of $332 million in FY 2020. Notable items were $991 million (net of tax) and related to the write-down of assets, mostly intangible assets, following an annual impairment test. Excluding this, cash earnings were down $11 million year on year at $321 million.

The Westpac New Zealand business was on form and recorded a 56% increase in cash earnings to NZ$1,013 million. This was primarily driven by a NZ$404 million turnaround in impairment charges. In addition, net interest income benefitted from a 3 basis point increase in margins and lending growth of 5% driven by NZ$5.7 billion of mortgage growth.

Finally, the Specialist Businesses segment return to profit with cash earnings of $193 million. This compares to a loss of $506 million in FY 2020. Management advised that this reflects lower notable items ($382 million net of tax) and an impairment benefit of $66 million compared to an impairment charge of $255 million in FY 2020.

Management commentary

Westpac’s CEO, Peter King, was pleased with the bank’s performance during another challenging year

He said: “2021 has been another challenging year, with a focus on continuing to support customers and employees through the pandemic, while implementing our Fix, Simplify and Perform strategic priorities.”

“Cash earnings rose, the balance sheet remains strong, and I am pleased with the progress we are making to transform Westpac into a simpler, stronger bank. Credit quality has remained remarkably good with stressed exposures continuing to decline off last year’s peak, while mortgage 90+ day delinquencies were also significantly lower.”

“A turnaround in impairment charges and lower notable items were the main drivers of our improved earnings, while we also restored growth in mortgages and have begun to see better momentum in our institutional and business portfolios. While notable items were lower, they remain elevated as we continue to work on fixing our issues and simplifying our business,” he added.

Share buyback

Potentially giving the Westpac share price a boost today is news that it plans to undertake an off-market buyback of up to $3.5 billion of shares.

Westpac Chairman, John McFarlane, commented: “Our improved operating performance and positive progress on our strategic priorities, including the completion of a number of divestments, have strengthened capital and allowed us to announce this Buy-Back. The Board carefully evaluated several options and believes this is the most value-enhancing option to distribute part of the Group’s capital and franking credits.”

The share buyback will be conducted by an off-market tender process which will open on 17 November and close on 17 December.

Shareholders will be able to offer to sell their shares at specified discounts to the market price of between 8% to 14% inclusive (at 1% intervals) and/or as a final price application. The latter is where you simply elect to receive the buyback price determined through the tender process.

Westpac notes that the capital component will be $11.34 per share, subject to ATO approval. Whereas the dividend component will be the buyback price less the capital component.

Outlook

Westpac’s CEO appears cautiously optimistic on the future, noting that he is confident the Australian economy will rebound over the next 12 months.

He said: “The recent lockdowns in NSW, Victoria and the ACT have been difficult for many businesses, and while uncertainty in the outlook remains, I am confident most industries will begin to recover as Australia’s two biggest states re-open. Consumer spending will likely increase significantly as states re-open and pent-up demand is released, particularly supported by consumer optimism and sizeable savings. We expect the Australian economy to expand by 7.4 per cent in 2022, with credit growth expanding 6.8 per cent. Demand for housing is likely to remain elevated but home price increases should moderate to 8 per cent next year.”

“Next year we expect to reduce our cost base as we head towards our $8 billion cost target from completion of programs under our Fix priority and realise the benefits from divestments. We have made considerable progress in improving our mortgage and business banking performance, driven by streamlining of lending processes to create a better customer experience. This sets us up to maintain momentum in the year ahead,” he added.

“For our business, loan growth is expected to be sound as the economy rebounds, although net interest margins will remain under pressure from low interest rates and competition. We are also committed to resolving a number of outstanding regulatory issues where our actions were not good enough. We are making progress in strengthening risk management, growing our core franchise, and simplifying the bank, which provides a strong platform to deliver a better service to customers, as well as returns for shareholders,” Mr King concluded.

The Westpac share price is up 31% year to date.

The post Westpac (ASX:WBC) share price on watch amid earnings jump and $3.5bn buyback appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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