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Highlights
- Westpac Banking Corp (ASX:WBC) shares have surged 43% in 2024 despite a profit decline.
- UBS predicts flat earnings for Westpac in FY25, with possible share buybacks or special dividends.
- Competitive pressures and cost growth may challenge future profits, but capital management offers upside.
Westpac Banking Corp (ASX:WBC) shares have had a remarkable 2024, up 43% year-to-date, despite a 3% decline in net profit after tax (NPAT) for the full FY24. The growth in Westpac's share price stands out given that its FY24 results showed a decline in profits, mainly due to heightened competition in mortgage pricing and higher inflation-related costs. While the 43% return is excellent for shareholders, the big question is: what lies ahead for Westpac’s shares in 2025? Let’s take a closer look at expert views on the outlook for the banking giant.
A Mixed Outlook for Westpac
Analysts are offering mixed predictions for Westpac's performance over the next year, with some expecting flat earnings growth amid ongoing industry challenges.
Darren Thompson, head of asset management at Equity Trustees Asset Management, pointed out that the outlook for banks like Westpac largely depends on their performance amid broader market conditions. He believes that while the banking sector will remain crucial for domestic market earnings, overall bank profits are expected to be flat in 2025. Key factors influencing this outlook include modest credit growth, persistent competition that will continue to compress net interest margins, ongoing inflationary pressures, and already low bad debt provisions.
Thompson’s comments suggest that banks like Westpac may face challenges in growing earnings, and without higher profits, valuations may struggle to rise. However, Westpac's impressive 43% share price increase in 2024, despite a decline in profits, shows that investors have a positive view of the bank's future potential.
UBS’s View on Westpac’s Future
UBS, a leading global broker, has a neutral outlook on Westpac shares, setting a price target of $33, which suggests limited movement over the next 12 months. Despite this neutral stance, UBS sees opportunities for further capital management, including share buybacks or special dividends. Westpac’s franking balance of approximately $3.5 billion provides the bank with flexibility for these actions.
UBS highlights several positive trends for Westpac, including a solid underlying net interest margin (NIM), which continues to show encouraging signs. While cost growth remains a headwind for the bank, UBS notes that the competitive pressures in home lending are being offset by stronger earnings on capital and deposits.
Additionally, UBS predicts that Westpac could undertake share buybacks of up to $1.7 billion in FY25, followed by another $1.5 billion in FY26. These capital management measures could provide support for the bank’s share price, offering value to investors.
Earnings Forecast for Westpac in FY25
UBS has forecast that Westpac will generate around $22 billion in revenue, $10 billion in pre-tax profit, and $7 billion in net profit for FY25. These projections are in line with what the bank achieved in FY24, reflecting a relatively stable financial outlook. Despite the forecast for flat earnings, Westpac’s capacity to generate consistent revenue and profits will remain attractive for investors, particularly in a competitive and inflationary environment.
Westpac’s performance in 2024 has been impressive, with a 43% increase in its share price, despite facing challenges in profitability. Going into 2025, analysts expect earnings to remain relatively flat due to competitive pressures and inflation.
