Let us take a look at Westpac's past 10 years financial performance. Warren Buffett looks at least past 10 years financial performance as a starting point.
1. EPS has increased from $1.90 in 2009 to $2.32 in 2018. It dropped to $1.97 in 2019 due to provisions for remediation costs driven by the Royal Comission in banking.
2. DPS has increased from $1.37 in 2009 to $1.88 in 2018. It dropped to $1.74 in 2019 due to drop in profits driven by provisions for remediation costs. My base case expectation is that dividend will be $1.60 for 2020 and worse case $1.40 per share
3. BV per share has increased from $12.62 in 2009 to $18.80 in 2019. Westpac traded around $14 during the GFC and it did not trade below its BV during the GFC. During past few weeks WBC share price has dropped significantly and during the last few days it traded below its BV. This has happened for the first time since 1993.
4. Westpac has increased its asset base from $618 billion in 2009 to $906 billion in 2019. This is an increase of 46%
Buffett learnt to invest from Benjamin Graham by following his strategy of long term value investing which means buying shares at prices below their intrinsic value and then holding the shares until the stock market re-prices the company's share price to reflect the real value of a company.
Buffett also said that one of the biggest challenges in investing in the stock market is failing to trust your investment decisions. This starts from lack of knowledge and understanding the risks. If you continue to rely on others to tell you what to invest in, you will continue to subject yourself to emotional decision making, which is not a very effective way to succeed in the stock market. You need to invest in yourself. Gain the knowledge to overcome the fear.
Buffet also believes in investing in quality companies and he would rather pay a fair price for a great company than a low price for a mediocre company. Westpac is the second largest bank in Australia and it is the fourth largest listed company on ASX.
Most of the time, the herd mentality makes us, over react in situations like these. We are responsible for creating such panics because of our fear. Similarly we go crazy during good times because we get overwhelmed by our greed. The key is to not get fearful and not get greedy. It is very hard to maintain balance but at the same time it is possible to implement a balanced approach to get over react.
This is a once in a lifetime opportunity to buy and hold Westpac shares for the long term. Investment in Westpac shares at these prices are meeting Buffett's investing guidelines and his investing methodology.
|
PER SHARE |
2010/09 |
2011/09 |
2012/09 |
2013/09 |
2014/09 |
2015/09 |
2016/09 |
2017/09 |
2018/09 |
2019/09 |
| 1 |
EPS |
1.90 |
1.99 |
2.08 |
2.22 |
2.43 |
2.52 |
2.24 |
2.33 |
2.32 |
1.97 |
| 2 |
DPS |
1.37 |
1.54 |
1.64 |
1.92 |
1.80 |
1.85 |
1.88 |
1.88 |
1.88 |
1.74 |
| 3 |
Book Value |
12.62 |
13.63 |
14.19 |
14.81 |
15.39 |
16.50 |
17.40 |
18.10 |
18.80 |
18.80 |
| 4 |
Shares (m) |
3,026 |
3,068 |
3,118 |
3,147 |
3,147 |
3,224 |
3,346 |
3,392 |
3,434 |
3,490 |
| 5 |
Assets (m) |
618,277 |
670,228 |
674,965 |
696,603 |
770,842 |
812,156 |
839,202 |
851,875 |
879,592 |
906,626 |
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