---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 186528
conversation_id: 78a37717-14a1-43ba-8a9d-4e112df00e91
citations: 0
created: 2026-05-31 19:06:03Z
---

# How does Westpac’s valuation compare to peers, and what justifies its premium/discount?

## Westpac (WBC AU) — Valuation vs Big Four Peers

CLSA rates Westpac **Underperform (U-PF)** with a 12-month target of **A$27.50** vs a price of A$33.21 (–17.2% downside) as of the 20 June 2025 sector update, and the analyst views WBC as trading at a **modest premium to its own long-term averages but a sharp discount to CBA**, with the discount fully justified by structural ROE inferiority and FY26 earnings headwinds [1][3].

### 1. Where WBC trades vs the peer set — the snapshot

From CLSA's Big Four valuation matrix dated 20 June 2025 (FY25 / FY26 average BV and EPS, current price vs LT 12m multiple) [1]:

| Metric | ANZ | CBA | NAB | **WBC** |
|---|---|---|---|---|
| Current price (A$) | 28.39 | 182.53 | 38.91 | **33.21** |
| LT 12m P/BV multiple | 1.6x | 2.1x | 1.7x | **1.8x** |
| Spot vs LT P/BV — Prem/(Disc) | (19%) | **+43%** | (6%) | **(29%)** |
| LT 12m P/E multiple | 11.9x | 14.1x | 11.8x | **12.7x** |
| Spot vs LT P/E — Prem/(Disc) | +13% | **+70%** | +27% | **+10%** |
| Target P/BV multiple | 1.30x | 3.00x | 1.60x | **1.30x** |
| Target P/E multiple | 13.5x | 24.0x | 15.0x | **14.0x** |
| Blended TP (A$) | 31.20 | 143.00 | 33.90 | **27.50** |
| Upside/(Downside) | +9.9% | (21.7%) | (12.9%) | **(17.2%)** |
| Implied 12m fwd div yield (A$) | 1.66 | 4.85 | 1.70 | **1.52** |

Two readings of the same table:

- **WBC vs its own history**: trading at a **29% discount to its long-run 1.8x P/BV** but at a **10% premium to its 12.7x long-run P/E** — consistent with the market valuing earnings power higher than the book value can deliver given Westpac's structurally lower ROE [1].
- **WBC vs CBA**: WBC's spot P/E (~16.4x on 2025 estimates) sits well below CBA's stretched **~29.1x forward PE vs a peer-average c.15.7x ex-CBA** — i.e., CBA carries a c.85% premium to the rest of the Big Four, of which WBC is one component [2][6].

### 2. Long-run forward P/E by bank (Figure 15 — peer comparison) [6]

| Year | ANZ | CBA | NAB | **WBC** |
|---|---|---|---|---|
| 2021 | 11.0 | 13.0 | 12.5 | **13.0** |
| 2022 | 12.5 | 15.0 | 14.5 | **15.0** |
| 2023 | 12.0 | 17.5 | 16.5 | **17.0** |
| 2024 | 12.5 | 20.0 | 19.5 | **19.5** |
| **2025** | **10.5** | **26.5** | **22.0** | **17.5** |

In FY25 WBC trades at **17.5x** — meaningfully **below CBA (26.5x) and NAB (22.0x)** but **above ANZ (10.5x)**. The gap reflects the market viewing WBC as inferior to CBA's franchise but cleaner than ANZ on near-term execution risk (new CEO, capital, NZ rate sensitivity) [6].

### 3. Long-run ROE by bank — what justifies the discount to CBA (and the premium over ANZ) [5]

| Fiscal Year | ANZ | CBA | NAB | **WBC** |
|---|---|---|---|---|
| FY10 | 15.8% | 19.0% | 12.0% | 16.0% |
| FY15 | 15.0% | 17.5% | 14.5% | 15.8% |
| FY20 | 6.2% | 9.0% | 7.0% | 9.0% |
| FY23 | 9.8% | 13.0% | 12.0% | 9.5% |
| FY24 | 9.5% | 13.8% | 11.2% | 9.5% |
| **FY25CL** | **9.5%** | **13.5%** | **10.5%** | **9.8%** |
| **FY26CL** | **9.8%** | **13.5%** | **10.0%** | **9.8%** |

This is the bedrock of the WBC discount narrative. **CBA earns ~13.5% ROE vs WBC ~9.8%**, a structural ~380bps gap that has widened since FY18 and shows no sign of closing on CLSA's FY26 numbers [5]. NAB also screens marginally ahead of WBC. CLSA explicitly notes: *"NAB has a solid ROE which should see it trade at a premium to ANZ and WBC"* — Westpac, on returns, sits in the same bottom tier as ANZ, not the premium tier with CBA/NAB [3].

WBC's standalone return path also drifts lower in the forecast period [10]:

| | FY23A | FY24A | FY25CL | FY26CL | FY27CL |
|---|---|---|---|---|---|
| Cash ROE | 10.3% | 9.8% | 9.4% | **8.9%** | 9.0% |
| Cost/income | 48.0% | 50.3% | 52.6% | **53.9%** | 53.7% |
| NIM | 2.0% | 1.9% | 1.9% | 1.9% | 1.8% |

A bank earning a sub-9% ROE cannot rationally trade at CBA-style multiples; the 50% P/BV gap (1.8x LT for WBC vs 2.1x LT for CBA, and 3.0x target vs 1.3x target) is exactly the spread you'd expect from the ROE gap [1].

### 4. WBC's own multiple history — premium or discount to itself?

- **P/BV**: WBC's long-term average is 1.8x; the 10-year average is 1.3x; the FY24 print was 1.5x [7]. CLSA's **1.3x target multiple** sits at the 10-year average, well below the cycle LT average — i.e., CLSA refuses to underwrite a re-rating back to pre-GFC books-multiples [4][8].
- **Forward P/E**: WBC's LT average is 12.4x; the 2025 print is 16.4x — the highest level in 25 years [6]. CLSA's target P/E of 14x sits below the spot but above the long-term mean [4][8].
- **Relative P/E vs ASX200**: WBC has historically traded at a **~15% discount to the ASX200 P/E**; in 2025 the relative discount narrowed to **–2%**, the tightest since 2010 [12]. This is the cleanest single chart showing WBC is rich vs its own history relative to the broader market.

### 5. What justifies the WBC discount to CBA / premium over ANZ (the analyst case) [3][11][8]

CLSA's framework lists four specific drivers behind the U-PF call:

1. **FY26 replicating portfolio headwind** — *"WBC does not have the tailwinds of peers in the replicating portfolio for FY26, which is a material headwind relative to peers"* due to a shorter-duration hedge book [3][11].
2. **Cost growth re-accelerating** — 2H25 expense growth running ~4% from amortisation, project Unite investment spend (+A$70–110m) and salary annualisation. **Unite benefits do not flow until FY28–29** [3].
3. **Below-system mortgage growth** — RAMS run-off keeps WBC printing below peers on housing [3].
4. **Dividend sustainability is OK but no upside** — CLSA expects 76c held, temporarily above the target payout range, supported by capital from RWA optimisation, the A$500m APRA add-on reversal (23bps) and the residual A$1.1bn buyback [3].

The CEO is well-liked and the new business-lending tilt is a positive, but *"given the returns, likely earnings headwinds over the next year, we believe it looks over valued in the near term"* [3].

### 6. WBC vs CBA — why the premium gap is structural [2]

CLSA's most pointed statement on relative valuation: *"Considering where CBA is trading (c.29.1x forward PE versus peer average c.15.7x excluding CBA), we find it difficult to see substantial upside in CBA with the relative valuation premium stretched"* [2]. CBA's target multiples are **3.0x P/BV (LT avg 2.1x)** and **24x P/E (LT avg 14.1x)**, justified by *"the strength of the franchise and structural market flow benefits"* (i.e., passive/superannuation flows) [1]. Note: CLSA explicitly applies an above-LT-average multiple to CBA but a **below-LT-average P/BV** to WBC — embedding a permanent discount in the WBC TP build.

### 7. Dividend yield — WBC's compensation for slower growth [9]

WBC has historically delivered a higher dividend yield than the majors' average — through 2024 WBC printed ~4.8% vs the major LT avg ~5.4%, but the cyclical chart shows WBC consistently above ANZ and below NAB on yield through most periods, with 2025 yield at **4.4% (Majors LT avg 4.9%)** [9]. On CLSA forecasts the 12m forward DPS implies WBC at ~4.6% vs CBA ~2.7%, NAB ~4.4%, ANZ ~5.8% — so WBC sits **mid-pack on yield**, which is not enough to offset the relative ROE gap [1].

### Bottom line

WBC trades at a **deep P/BV discount to CBA (1.5x spot vs 2.6x for CBA)** that is fully justified by a **~380–400bps structural ROE gap** (CBA 13.5%, WBC 9.8% in FY25CL) [5][1]. Against its own history, WBC is **cheap on P/BV (–29% to LT) but rich on P/E (+10% to LT) and rich on relative P/E vs ASX200** (–2% vs LT –15%) [1][12]. CLSA's U-PF call rests on (i) FY26 replicating portfolio headwind, (ii) Unite-driven cost growth re-accelerating with payback only in FY28–29, and (iii) sub-system mortgage growth — none of which support a return path back to its long-term P/BV multiple [3][4][11]. Relative to peers, WBC ranks **third of four** in CLSA's preference order (ANZ > NAB > WBC > CBA), with **ANZ preferred as the value play** at a similar P/BV multiple but better implied catalysts [1].

---

**Sources**

- [1][2][3][4][5][6][9][11] CLSA — *Australian banks (ANZ the one to watch)* — Ed Henning, 20 Jun 2025 (Doc 607962478)
- [7][8][10][12] CLSA — *Westpac - U-PF (Margin headwinds)* — Ed Henning, 5 May 2025 (Doc 607957983); downgrade from Hold to U-PF, TP cut A$29.80 → A$27.50, target P/BV 1.4x → 1.3x, target P/E 14.5x → 14x

Note on corpus vintage: latest CLSA WBC-related notes in the workspace are dated 30 Jun 2025; the FY25 result and any subsequent rating change are not yet in this corpus.

