Westpac Banking Corp (ASX: WBC) shares were on form on Monday.

The banking giant’s shares ended the day almost 3% higher at $25.24.

Investors were buying the bank’s shares following the release of its first quarter update.

In case you missed it, Westpac reported an unaudited net profit of $1.5 billion for the three months. This was down 6% from the second-half average of FY 2023.

However, it is worth highlighting that one-offs weighed on its profits. If you exclude these, Westpac’s unaudited net profit would have come in flat against the second-half average at $1.8 billion.

The big question now is whether Westpac shares can keep rising or have they peaked? Let’s find out.

Can Westpac shares keep rising?

The team at Goldman Sachs has been running the rule over the result.

And while it was pleased with what it saw, it hasn’t been enough for a change of recommendation.

Goldman has held firm with its neutral rating with an improved price target of $23.46. This is lower than where its shares trade now.

The broker highlights that net interest margin (NIM) pressures appear to be easing and its costs were better than expected. However, it is waiting for more data before making any changes to its rating. It said:

Coupled with disclosures in BEN’s 1H24 result, there are signs that industry-wide NIM pressures are starting to ease. Beyond this, WBC’s performance on costs was better than we had anticipated, and bodes well for when WBC finalises details of its technology simplification initiative (expected before 1H24 result), which was first announced at its FY23 result, and which management believes can be funded within its A$2 bn p.a. of investment spend. We stay Neutral ahead of more detail around the costs and expected benefits of the technology simplification.

The post Are Westpac shares a buy following the bank’s results? appeared first on The Motley Fool Australia.

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More reading

• High rates, falling profits: Why are ASX bank shares losing out this reporting season?
• Why are Westpac shares leaping ahead of rival ASX 200 bank stocks on Monday?
• Westpac share price on watch following $1.8 billion quarterly profit
• 5 things to watch on the ASX 200 on Monday
• Which ASX 200 large-cap shares offer the best dividend yields in 2024?

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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 Scott Phillips.

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There are plenty of established ASX blue chip shares to choose from on the Australian share market.

But which ones could be buys in February?

Let’s take a look at three that could be among the best options on the market right now. They are as follows:

CSL Ltd (ASX: CSL)

The team at Morgans has this biotherapeutics giant’s shares on its best ideas list this month.

The broker has an add rating and $315.40 price target on the blue chip. It commented:

While shares have struggled of late, we continue to view CSL as a key portfolio holding and sector pick, offering double-digit recovery in earnings growth as plasma collections increase, new products get approved and influenza vaccine uptake increases around ongoing concerns about respiratory viruses, with shares trading at 25x, a substantial discount (20%) to its long-term average.

ResMed Inc. (ASX: RMD)

Analysts at Bell Potter think that this sleep treatment focused medical device company is an ASX blue chip share to buy.

The broker has ResMed on its favoured list for February with a buy rating and $34.00 price target. It said:

The market for OSA and chronic obstructive pulmonary disease (COPD) remains under penetrated, and we expect industry volume growth to continue in the 6-8% range for the foreseeable future. In this regard, the competitive dynamics are very much in favour of RMD due to the Philips recall and improving semiconductor availability.

Woolworths Group Ltd (ASX: WOW)

Finally, Goldman Sachs has this ASX blue chip share on its coveted conviction list this month.

The broker has a conviction buy rating and $42.30 price target on the supermarket giant’s shares. It explains:

We are Buy rated on the stock as we believe the business has among the highest consumer stickiness and loyalty among peers, and hence has strong ability to drive market share gains via its omni-channel advantage, as well as pass through any cost inflation to protect its margins, beyond market expectations. The stock is trading below its historical average (since 2018), and we see this as a value entry level for a high-quality and defensive stock.

The post ASX blue chip shares: The best of the best for February 2024 appeared first on The Motley Fool Australia.

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More reading

• Buy these top ASX 200 stocks for 18%+ returns
• The best ASX shares to invest $20,000 in right now
• Top brokers name 3 ASX shares to buy next week
• If I could buy only one ASX stock this February earnings season, it would be…
• 2 ASX 200 growth shares to buy with ‘immense opportunity’ ahead

Motley Fool contributor James Mickleboro has positions in CSL and ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goldman Sachs Group, and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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A second income is what most investors aim for, but it’s probably more straightforward to achieve than many of them realise.

You can start with as little as $5,000.

Let’s take a look at a couple of ASX dividend shares that could help with this mission and see how hypothetically you could arrive in the promised land:

The land of plenty

Australia is blessed to host many quality income stocks because of its favourable tax rules.

Two that experts seem to like at the moment are BSP Financial Group Ltd (ASX: BFL) and Whitehaven Coal Ltd (ASX: WHC).

The former is Papua New Guinea’s largest bank, which has paid back its investors handsomely in recent years.

IG Australia market analyst Hebe Chen is bullish on the financial stock.

“BSP Financial’s gross dividend yield was 9.75% in the past financial year, with its stock price jumping 32% from early last year and 51% over the past two years.”

Meanwhile Whitehaven Coal is cashing in on the energy anxiety much of the developed world is feeling due to conflicts in the Middle East and a ban on Russian gas and oil.

The stock is paying out a sensational fully franked dividend yield of 10.6%.

Whitehaven shares have dived this month due to an unfavourable reporting season, but they have remained resilient over the past year while other energy stocks have suffered from high volatility.

Second income now or later?

Going back to the $5,000, if you are impatient you could extract passive income immediately from the above dividend stocks.

If you split that money evenly between the two stocks, you could buy around 710 shares.

For ease of calculation, if we say BSP Financial and Whitehaven Coal average out to 10% yield, that’s $500 coming into your bank account each year.

That’s pretty handy cash for just a $5,000 investment.

But if you can afford to wait a tad longer, you could try to secure a much more significant second income.

Check this out.

If you can maintain a compound annual growth rate (CAGR) of 10%, which is simply the current dividend yield without even taking any capital growth into account, let the investment grow for 10 years.

Moreover, keep saving and add $400 to the portfolio each month.

You will then find your shares are worth $89,468 by the end of that decade.

If you then start pocketing the annual returns, you have $8,947 in your bank account each year.

Does that sound much better?

That’s a nice overseas holiday each year, or paying for the kids’ education expenses.

Or in monthly terms, it’s $745 of second income, which is almost double the amount you had been saving.

The post $5k to invest buys me 700 shares in these 2 ASX stocks for a second income! appeared first on The Motley Fool Australia.

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More reading

• Why BHP, IDP Education, Pro Medicus, and Whitehaven Coal shares are dropping
• Whitehaven share price crumbles on plunging half-year revenue
• 16% gross yield: The 3 hottest high-dividend ASX stocks to buy right now
• ASX passive income: How much should you invest to earn $1,000 every month?
• If I’d invested $10,000 in this ASX 200 share 3 years ago I’d have $58,538 today!

Motley Fool contributor Tony Yoo 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 Scott Phillips.

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If you’re searching for new income options then it could be worth checking out these three ASX 200 dividend stocks listed below.

Here’s why they could be in the buy zone right now:

Suncorp Group Ltd (ASX: SUN)

According to analysts at Goldman Sachs, this insurance giant could be a top option for income investors.

The broker currently has a buy rating and $15.00 price target on the company’s shares.

It likes the company due to “the tailwinds that exist in the general insurance market.” This includes “very strong renewal premium rate increases and the benefit of higher investment yields.”

As for income, the broker is forecasting fully franked dividends per share of 75 cents in FY 2024, 82 cents in FY 2025, and 85 cents in FY 2026. Based on the current Suncorp share price of $14.43, this will mean yields of 5.2%, 5.7%, and 5.9%, respectively.

Telstra Corporation Ltd (ASX: TLS)

Goldman Sachs also thinks that telco giant Telstra could be an ASX 200 dividend stock to buy.

Its analysts currently have a buy rating and $4.55 price target on the company’s shares.

Goldman remains positive on Telstra following the release of its half-year results this month. It continues to believe “the low risk earnings (and dividend) growth that Telstra is delivering across FY22-25, underpinned through its mobile business, is attractive.”

It expects this to lead to Telstra paying fully franked dividends of 18 cents per share in FY 2024, 19 cents per share in FY 2025, and then 20 cents per share in FY 2026. Based on the current Telstra share price of $3.90, this equates to yields of 4.6%, 4.9%, and 5.1%, respectively.

Transurban Group (ASX: TCL)

Finally, the team at Citi thinks that Transurban could be an ASX 200 dividend stock to buy. It is a leading toll road developer and operator.

The broker has a buy rating and $15.60 price target on its shares.

Citi was pleased with the company’s half-year results and continues to believe that Transurban’s dividend guidance is “conservative” in FY 2024.

As a result, it is expecting a dividend ahead of guidance this year. It has pencilled in dividends per share of 63 cents in FY 2024, 65 cents in FY 2025, and 68 cents in FY 2026. Based on the current Transurban share price of $13.17, this will mean yields of 4.8%, 4.9%, and 5.15%, respectively.

The post Buy Telstra and these ASX 200 dividend stocks appeared first on The Motley Fool Australia.

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More reading

• Retirees: Here’s how to boost your pension in 2024
• How will ANZ shares react to a big week of ASX news?
• Is the Telstra share price too low, after another strong set of results?
• Why these 3 top ASX 200 stocks grabbed the Motley Fool’s headlines this week
• 5 steps to becoming a milionaire with ASX shares

Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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 positions in and has recommended Goldman Sachs Group and Transurban Group. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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On Monday, the S&P/ASX 200 Index (ASX: XJO) started the week with the smallest of gains. The benchmark index rose slightly to 7,665.1 points.

Will the market be able to build on this on Tuesday? Here are five things to watch:

ASX 200 expected to edge higher

The Australian share market is expected to edge higher on Tuesday despite a mixed start to the week on global markets. According to the latest SPI futures, the ASX 200 is poised to open the day 1 point higher. Wall Street was closed but the FTSE rose 0.2% and the DAX was down 0.15%.

BHP results

BHP Group Ltd (ASX: BHP) shares will be on watch today when the mining giant releases its half-year results. According to a note out of Goldman Sachs, its analysts are expecting the company to report first-half revenue of US$27,595.57 million. This will be an increase of 6.2% over the US$25,982 million that was reported a year ago. As for earnings, the consensus estimate is for US$1.43 per share. This is up 10% on the prior corresponding period.

Oil prices mixed

ASX 200 energy shares including Woodside Energy Group Ltd (ASX: WDS) and Karoon Energy Ltd (ASX: KAR) will be on watch after a mixed night for oil prices. According to Bloomberg, the WTI crude oil price is up 0.1% to US$79.27 a barrel and the Brent crude oil price is down 0.2% to US$83.30 a barrel. Trading was thin due to the US public holiday.

Megaport results

The Megaport Ltd (ASX: MP1) share price will be on watch today when the elasticity connectivity and network services interconnection provider releases its half year results. The company has already pre-released its results, reporting a 35% increase in revenue to $95 million and EBITDA of $30 million. All eyes will be on its guidance, which was unchanged despite the stronger than expected half.

Gold price rises

ASX 200 gold shares including Evolution Mining Ltd (ASX: EVN) and Regis Resources Limited (ASX: RRL) could rise today after the gold price climbed overnight. According to CNBC, the spot gold price is up 0.25% to US$2,029.4 an ounce. Middle East tensions boosted the safe haven asset.

The post 5 things to watch on the ASX 200 on Tuesday appeared first on The Motley Fool Australia.

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• Here are the top 10 ASX 200 shares today
• This ASX 200 share is predicted to benefit from AI demand for years
• What are the pros and cons of buying BHP shares before the company reports?
• 5 things to watch on the ASX 200 on Monday
• How to build a $1 million superannuation fund

Motley Fool contributor James Mickleboro has positions in Woodside Energy Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Megaport. The Motley Fool Australia has recommended Megaport. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Fund manager Wilson Asset Management has named an appealing S&P/ASX 300 Index (ASX: XKO) stock that could be worth betting on. That business is Jumbo Interactive Ltd (ASX: JIN), an Australian lotteries retailer and provider of a software as a service (SaaS) platform for government and charity lottery operators.

Why does WAM like this ASX 300 stock?

The fund manager pointed out that the Jumbo Interactive share price has been rising recently because of a surge in lottery ticket sales for Powerball jackpots during the month.

WAM thinks the new players that Jumbo Interactive has attracted through this jackpot period can be converted into regular players, boosting customer numbers and this can increase revenue as a result.

The investment team wrote about the ASX 300 stock:

We believe that Jumbo Interactive is currently undervalued by the market with a net cash balance sheet providing plenty of scope for earnings-accretive acquisitions or capital management.

Recent trading update

At the annual general meeting (AGM), it said that its revenue for the four months to 31 October 2023 had grown 3% to $35 million.

It revealed the SaaS total transaction value (TTV) had increased 20% to $53.9 million in the first quarter, while managed services TTV increased to $66.1 million.

In terms of the outlook, with lottery retailing, it’s expecting an improved revenue margin following portfolio pricing changes which were announced in 2023.

The acquisitions are expected to see mid-to-high single-digit revenue growth.

For the group, the ASX 300 stock is expected to see underlying operating cost growth grow at a slower pace than revenue on a like-for-like basis.

Overall, it’s expecting to see strong free cash flow generation, which can enable a targeted dividend payout ratio of between 65% to 85% of statutory net profit after tax (NPAT). It’s looking at acquisitions, supported by “balance sheet strength and debt headroom.”

Jumbo Interactive share price snapshot

Since the start of 2024, the Jumbo Interactive share price has risen by 15%.

The post A fund manager is betting on this ASX 300 stock. Is it a buy? appeared first on The Motley Fool Australia.

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• 3 ASX shares predicted to enjoy ‘strong growth’ in 2024 earnings
• Top brokers name 3 ASX shares to buy today

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Jumbo Interactive. The Motley Fool Australia has recommended Jumbo Interactive. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The fortunes of ASX mining shares tend to be, generally, closely linked to how the global economy is faring.

That’s because demand for raw materials dies down during periods of low consumption, which pushes commodity prices lower. And that means less earnings for the miners.

So after a year or two of struggles, it’s not unreasonable to think that, with interest rate cuts possibly on the horizon, resources stocks could now have some upside as the economy improves.

Here are two such stocks that experts are fancying at the moment:

Lots of cash and gold bullion, with no debt

The Perseus Mining Ltd (ASX: PRU) share price has lost more than 31% since mid-April 2023.

Novus Capital stock broker John Edwards told The Bull that the company was “a profitable West African gold producer with three operating mines”.

“Perseus Mining guided to second half gold production of between 226,000 ounces and 254,000 ounces in fiscal year 2024 at an all-in-sustaining cost of between US$1,180 and US$1,340 an ounce.”

Edwards, who disclosed that he personally owns Perseus shares, is bullish on the mining shares.

“The company had available cash and a bullion balance of US$642 million and no debt at the end of the second quarter.”

He has a stock price target of $2.80, which is a whopping 58% upside from the current level.

According to CMC Invest, four out of seven analysts currently rate Perseus shares as a buy.

Lithium business is still profitable

Mineral Resources Ltd (ASX: MIN) shares have plunged almost 34% since last March.

BW Equities equities salesperson Tom Bleakley described the outfit as “a diversified mining services business”, which is also involved in producing iron ore and lithium in its own right.

And it’s the plummeting global prices for that battery material that’s keeping the stock price depressed.

A recent update reassured Bleakley, though.

“While lithium prices have nosedived, Mineral Resources’ January update showed its lithium operations are still profitable.”

“The iron ore price is buoyant.”

With batteries crucial to the transition to lower carbon emissions, this could be a buying opportunity for long-term investors.

“In our view, Mineral Resources is poised to benefit from any recovery in the lithium price.”

The post 2 battered ASX mining shares to buy for cheap right now appeared first on The Motley Fool Australia.

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• ASX mining shares up amid Labor plan to spend multibillions on renewables revolution
• 2 ASX lithium shares with cash to ride out the current depression
• Morgans names more of the best ASX 200 shares to buy in February
• 7 ASX lithium shares going gangbusters today
• These 3 ASX 200 shares just got some big broker upgrades!

Motley Fool contributor Tony Yoo 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 Scott Phillips.

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Living life is a lot more expensive these days, whether you’re a retiree or a 25-year-old. Australia’s age pension is generous compared to most countries, but it may not be enough.

The maximum normal pension basic rate per fortnight in Australia is $1,002.50, which is $26,065 annualised. The basic pension payment combined for a couple is $1,511.40 per fortnight, or $39.296.40 annualised. There is also a relatively small pension supplement and energy supplement which can add a bit more per fortnight.

Is that enough? How much do you need?

The AFSA Retirement Standard suggests for a modest lifestyle that a single retiree would need $32,417.48 annually, and a couple would need $46,620.05 annually. Those numbers are based on the retiree owning their house outright, which is certainly not a guaranteed thing.

I think there are a few ways that retirees can boost their income, though it’s worth checking to ensure that retirees don’t pass any asset limits.

Term deposits

If an investor is sitting with cash in the bank, I’d encourage them to ensure they’re getting a good return. There are savings accounts and term deposits that offer a rate that starts with a 5%, and lots that offer a high 4%.

Investors can get a solid, safe return these days from cash, so retirees should make sure they utilise that if they want the safety of cash.

ASX dividend shares

Investing in ASX dividend shares is one of my favourite ways to boost my passive income.

There are lots of companies within the S&P/ASX 200 Index (ASX: XJO) that pay appealing, fully franked dividends. Not only are the dividend yields attractive, but companies have the ability to grow their payouts over time if profit grows too.

Some ASX companies have long track records of dividend growth, such as Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Sonic Healthcare Ltd (ASX: SHL) and Brickworks Limited (ASX: BKW). Others (usually) offer a solid dividend yield and strong market power, such as Telstra Group Ltd (ASX: TLS) and Wesfarmers Ltd (ASX: WES).

REITs

We can also find real estate investment trusts (REITs) on the ASX, which allow us to invest in businesses that own large property portfolios across the country.

Commercial property can offer an attractive mix of yield, consistency and long-term rental income growth.

Some of my favourite REITs include farmland landlord Rural Funds Group (ASX: RFF), logistics and industrial property owner Centuria Industrial REIT (ASX: CIP), and healthcare property owner Healthco Healthcare and Wellness REIT (ASX: HCW).

ETFs

Owning an exchange-traded fund (ETF) could be useful for dividends because it means owning a basket of shares in a single investment. ETFs typically offer good diversification because they invest in a range of businesses and industries.

Some ETFs I’d be happy to own for income if I were a retiree include Vanguard Australian Shares Index ETF (ASX: VAS), the UK-focused ETF of Betashares FTSE 100 ETF (ASX: F100) and the India-focused Betashares India Quality ETF (ASX: IIND).

Owning a variety of assets as a retiree could make a lot of sense, boost income and help pay for retirement.

The post Retirees: Here’s how to boost your pension in 2024 appeared first on The Motley Fool Australia.

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More reading

• 2 ASX shares under $50 new investors can buy confidently
• Is the Telstra share price too low, after another strong set of results?
• Why I’d put Wesfarmers shares in my ultimate ASX dividend income portfolio in 2024
• Why these 3 top ASX 200 stocks grabbed the Motley Fool’s headlines this week
• 5 steps to becoming a milionaire with ASX shares

Motley Fool contributor Tristan Harrison has positions in Brickworks, Rural Funds Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Brickworks, Rural Funds Group, Telstra Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has recommended Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Some people get a bit funny about buying ASX shares that have already risen significantly.

Their logic is that if it’s already soared, then the winnings are past it.

But this is flawed reasoning, not based on any fact.

Stocks do not have any memory. They don’t care whether they have headed up or down in the past.

All that matters are the prospects of the underlying business, and how attractive that looks to investors.

Keeping this in mind, here are two surging ASX shares that professional investors are recommending as buys right now:

Wheeling and dealing with an American giant

Generation Development Group Ltd (ASX: GDG) is not a name often heard in the financial media, but Novus Capital stock broker John Edwards is bullish on the life insurance provider.

“The recent move by GDG to partner with MetLife Inc (NYSE: MET), one of the biggest insurance companies in the world, brings GDG’s new LifeIncome annuities product into sharp focus,” Edwards told The Bull.

“GDG’s annuities product has been strengthened after an external quality of advice review was seen as positive.”

The company can also sell its product to industry superannuation funds, which bolsters member retention for those clients.

The market has been taking notice of Generation’s hot potential, sending the share price more than 65% higher since April.

“Total funds under management stood at $2.928 billion in December 2023, up 24% on the previous corresponding period.”

Edwards has a share price target of $3, which is a tidy 56% upside from the current valuation.

Making hay while rivals exit the industry

After years in the wilderness, is ‘buy now, pay later’ back in vogue?

If the Zip Co Ltd (ASX: ZIP) share price is anything to go by, it is.

The finance stock has climbed a jaw-dropping 226% since early October.

BW Equities equities salesperson Tom Bleakley noted the impressive numbers coming out of the business.

“The company delivered a strong 2024 second quarter result. Revenue of $225.6 million was up 26.1% on the prior corresponding period. 

“The revenue margin improved to 8.2% in response to competitors leaving the industry.”

For him, Zip shares are a buy because the BNPL industry is set to boom as the world recovers from rising interest rates and cost-of-living pressures.

“Zip is a growth story leveraged to a relatively strong consumer economy.”

The post 2 rocketing ASX shares you need to think about getting on board appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Zip Co. 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 Scott Phillips.

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We’re in the thick of ASX reporting season, some results have been positive and some have been rather disappointing. The ASX bank share sector hasn’t exactly been lighting up this February.

Reporting season is just as much about investor expectations for the financial numbers as it is about the actual growth (or decline) in absolute terms. For example, if a business is expected to report a profit decline of 20% and it only fell by 10% then that’s a win.

Similarly, if profit rises 5% but it was expected to go up 10%, then this is seen as a disappointment. Perhaps the market was expecting too much?

Profits go backwards

In the Commonwealth Bank of Australia (ASX: CBA) FY24 first-half result, the bank reported that statutory net profit after tax (NPAT) declined by 8% to $4.8 billion. It blamed banking competition and higher operating expenses.

The Westpac Banking Corp (ASX: WBC) FY24 first quarter saw $1.5 billion of net profit, which represented a 6% decline on the FY23 second-half quarterly average.

The Bendigo and Adelaide Bank Ltd (ASX: BEN) FY24 first-half result saw cash earnings after tax of $268.2 million, down 5% compared to the second half of FY23. It saw its total lending fall 0.7% amid “competitive market pressures”, while the net interest margin (NIM) fell 15 basis points (0.15%) to 1.83% because of “price competition in both lending and deposits and a higher level of liquid assets.”

We have seen the Reserve Bank of Australia (RBA) cash rate jump to 4.35%. While ASX bank shares did initially pass on the increases faster to borrowers than savers, things have changed. Competition has reduced bank profitability in margin terms.

Banks need to offer a much better interest rate to savers to attract their deposits. Lenders need to offer a good rate to borrowers to ensure they stay, and to win new borrowers, otherwise, banks will lose market share over time.

The higher interest rates have also led to lower demand for credit as well as rising arrears. The longer rates stay at this level, the worse things might get for arrears and bad debts for ASX bank shares. I’m not predicting catastrophe, just a return to a normalised level of bad debts for banks.

The real winners from higher interest rates seem to be savers.

What next for ASX bank shares?

The Bendigo Bank CEO Marnie Baker had a number of interesting comments about the situation:

The bank expects the official cash rate to remain at current levels for most of 2024 following the recent pause from the Reserve Bank. Inflationary pressures remain persistent but are moderating. The Australian economy is likely to outperform its peers over time, although we expect unemployment levels to rise in the short-term. Economic growth is likely to be very modest in financial year 2024 before showing improvement in financial year 2025.

Cost of living pressures will continue to present a challenge to Australian households.

Asset quality remains intact, and marginal increases in 90-day arrears in the Bank’s residential lending portfolio represent increased cost of living pressures experienced in some areas of the community. We expect bad debts to trend upwards and move towards longer-term averages over time. Our home loan customers remain well ahead of their repayments with 41% one year ahead of repayments. Pleasingly, more than 85% maintain a financial buffer.

Of course, that does suggest that close to 15% don’t have a financial buffer, so hopefully they are able to ride out this period. It is a very interesting time for ASX bank shares. I’m personally not expecting strong growth in the short term for the sector.

The post High rates, falling profits: Why are ASX bank shares losing out this reporting season? appeared first on The Motley Fool Australia.

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More reading

• Why are Westpac shares leaping ahead of rival ASX 200 bank stocks on Monday?
• You need to act fast if you want to receive the next CBA dividend
• Bendigo Bank share price tumbles on half-year earnings slump
• Westpac share price on watch following $1.8 billion quarterly profit
• 5 things to watch on the ASX 200 on Monday

Motley Fool contributor Tristan Harrison 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 positions in and has recommended Bendigo And Adelaide Bank. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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