WBC: $300m Increase to Buy-Back!

Submitted by Share Trading on 19 December, 2005 - 19:14

Shares in Westpac (WBC) have jumped over 2% in morning trade to lead the banking sector higher after announcing an increase to its buy-back program. Australia’s fourth-biggest bank has increased the size of its buy-back to $1b, a $300m increase over its announced target size of $700m. Macquarie Research Equities (MRE) reiterate their outperform recommendation and is MRE’s second top pick in the banking sector behind ANZ.

$700m Buy back announced at FY05 result. At its FY05 results in November, WBC announced an off market tender buyback of approximately $700m (with a $4 capital component and the balance paid by way of a fully franked dividend). This was announced in conjunction with WBC's Dividend Reinvestment Plan (DRP) which had a participation rate of 21.7% ($207m as 9.3m shares were issued @ $22.22, or 0.498% of shares pre the DRP).
Strong demand from investors leads to Buy-Back Increase. WBC reports the buy-back saw over $2b worth of shares tendered at the maximum discount of 14%. As such the bank increased the buy back to $1b (52.3m shares, or 2.8% of ordinary shares on issue). The buy-back price is $19.13 per share, a 14% discount to Volume Weighted Average Price (VWAP) over the five trading days up to and including Friday's closing date of the buyback.

With WBC's FY05 result above consensus expectations, and above top of market forecasts, this 42% increase to the buyback should further enhance expectations the bank will deliver FY06 earnings growth at the upper end of the sector. Since moving to an outperform recommendation in July, WBC's share price has increased by almost 15% (or 17.5% if we add back the 2H05 dividend). WBC remains MRE's second pick in the sector. Outperform recommendation maintained.