By Jenny Ruth
Wednesday 12th May 2010
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Westpac Bank's cash net profit of $A2.98 billion for the six months ended March was 30% higher than the previous first-half and above his $A2.91 billion forecast, says Aegis Equities Research analyst David Ellis.
The improvement was driven by a 4% increase in revenue, partly offset by a 2% increase in costs, a sharp 45% drop in bad debts to $A879 million, and solid 6% growth respectively in deposits and loans.
"The St George integration continues to plan with synergies running ahead of expectations," Ellis says.
However, core underlying earnings with up on 4.7% on the previous first-half and up just 2.4% on the six months ended September 2009.
"We have reduced our forward earnings assumptions due to the slower performance in Westpac's core retail banking businesses in the half," he says.
He has cut his earnings-per-share forecast for the year ending September 2010 by 2.3% and his 2011 forecast by 4.6%.
"The longer term flow-on effect of lower earnings growth has seen our valuation fall from $A30.46 to $27.47."
Nevertheless, Westpac is in a strong position to continue driving revenue and earnings growth despite volatile economic conditions, Ellis says. He expects robust profit margins despite funding costs remaining high.
BROKER CALL: add (downgraded from buy).
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