Investment Thesis

• Significant operations across the globe, which provides diversity in business and geographic mix.
• Changing business mix has seen the company move to more reliable (annuity style) earnings stream – making it a more quality (less volatile) business. 
• Solid management team. 
• Strong infrastructure business, which should benefit further government polices to drive economic growth. 
• Push into green energy is a positive. 
• Solid balance sheet, with surplus capital available for deployment (i.e. growth opportunities). 
• Management unable to quantify FY21 earnings guidance due to the ongoing Covid-19 pandemic.
• Potential capital management initiatives in the absence of investment in growth opportunities. 

Key Risks

• Weakness / volatility in financial markets.
• Change in regulatory landscape.
• Weakness in asset values (e.g. MQG’s co-investments).
• Increased competition for advisory work.
• Value / EPS destructive acquisitions.
• Company fails to achieve its FY20 guidance. 

1H22 Result Summary

• Net operating income of A$7.8bn increased +41% over pcp, driven by higher Fee and commission income (+32% over pcp), Net interest and trading income (+20% over pcp), Net other operating income (+75% over pcp) and Share of net profits/(losses) from associates and joint ventures (A$242m vs loss of A$54m in pcp), which combined with total operating expenses of A$5.1bn (+19% over pcp), delivered NPAT of A$2.04bn (+107% over pcp). 
• Net credit and other impairment charges declined -48.5% over pcp to A$230m, with lower charges recognised across most operating segments reflecting improvement in expected macroeconomics conditions.
• Annualised ROE increased +350bps over 2H21 to 17.8%.
• The Board announced A$1.5bn of capital raising in the form of a non-underwritten institutional placement followed by a non-underwritten share purchase plan, to provide additional flexibility to invest in new opportunities.
• The Board declared an interim ordinary dividend of A$2.72 per share (40% franked), up +101.5% over pcp, representing a payout ratio of 50%.

Company Profile 

Macquarie Group (MQG) is a leading provider of financial, advisory, investment and funds management services. The company has operations around the globe, including world’s major financial centres. The company operates the following key divisions: Macquarie Asset Management; Corporate and Asset Finance; Banking and Financial Services; Commodities and Global Markets; and Macquarie Capital. MQG has over 14,000 employees in over 25 countries across Europe, Middle East & Africa, Asia, Americas and Australia).  

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Investment Thesis 

• Strong franchise model with management pushing towards lowering the bank’s cost to income ratio.
• Improving loan growth profile and potential to grow above system growth. 
• Better than expected outcome on net interest margin (NIM). 
• Excess capital presents the potential for additional capital management (buybacks). 
• Strong provisioning coverage.
• Macro environment – domestic & global – is improving with extensive monetary and fiscal policies. 
• A well-diversified loan book.

Key Risks

• Intense competition for loan growth.
• Margin pressure.
• Ongoing remediation expenses. 
• Housing market stress. 
• Increase in bad and doubtful debts or increase in provisioning.
• Funding pressure for deposits and wholesale funding (increased funding costs).
• Any legal fees, settlements, loss or penalties.

FY21 Results Highlights

Relative to the pcp: 

• Statutory net profit of $5,458m, was up +138%. Cash earnings of $5,352, was up +105%. Excluding notable items, cash earnings of $6,953m, was up +33%. Cash EPS of 146 cents, was up +102%. 
• WBC reported 2021 impairment benefit of $590m and sound credit quality with stressed exposures to total committed exposures at 1.36%, down 55bps. Australian 90+ day mortgage delinquencies at 1.07%, down 55bps. Impaired exposures down 23% in the year. 
• Net Interest Margins of 2.04%, was down 4bps. WBC’s Australian mortgage lending was up +3% ($14.7bn) whilst Australian business lending was up +4% in 2H21. WBC’s total customer deposits was up +4% ($24.9bn). 
• ROE of 7.6%, was up +372bps. Excluding notable items, ROE of 9.8%, up +212bps. 
• CET1 capital ratio was 12..

Details of up to $3.5bn off-market Buy-Back

According to WBC’s Buy-Back booklet: (1) The Buy-Back provides Eligible Shareholders the opportunity to sell some or all of their Shares to Westpac. Participation is voluntary. (2) Eligible Shareholder can offer to sell some or all of your Shares to Westpac: at a Discount to the Market Price nominated by you of between 8% and 14% inclusive (at 1% intervals); and/or at the final Buy-Back Price (as a Final Price Application). Shareholders can also select a Minimum Price. If the Buy-Back Price is below the Minimum Price, none of the Shares will be bought back.

Westpac Banking Corp (WBC) is one of the major Australian Banks. The bank services individuals and businesses such as SMEs, corporations, and institutional clients. The bank’s core segments include Retail Banking, Business Banking, Institutional Banking, Consumer Banking and its wealth management business, BT Financial Group (Australia).  

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.