Westpac first bought $40 million worth of Zip shares in 2017 and then another $8.9 million through a capital raising in 2019. The sale will result in Westpac coming away with a tidy profit of $366 million.
The ASX bank claims the reason to sell “reflects Westpac’s approach to simplifying its business and ensuring the efficient use of capital”. Westpac’s CET1 capital ratio will increase by 8 basis points as a result of the sale.
Recent Afterpay announcement
On Tuesday, Afterpay announced a partnership with Westpac, which will see the BNPL company offer a savings account and cash flow tools for customers in Australia.
The savings account will be linked to the Afterpay user’s account and aims to deliver a more tailored user experience.
According to The Australian Financial Review, Westpac approached Zip in the hopes it might become the foundational customer for this new banking-as-a-service platform. After being knocked back by Zip, Westpac then went to Afterpay.
Is this a red flag?
Maybe. Westpac’s decision to sell its stake doesn’t seem too transparent in my eyes. If it thought Zip shares were good value, maybe it would’ve held onto them longer? In saying that, Westpac made a significant profit and it may not be a reflection of the sentiment towards Zip.
Given that Westpac is now partnered with Afterpay, it could be that it didn’t want a shareholding in its biggest competitor.
Whatever the reason, it’s not a material change in Zip’s operations and probably shouldn’t change your long-term view of the company.
The relationship between Zip’s announcements and its share price movements is bizarre. Zip has had a great run recently – announcing record revenues in its most recent quarter, followed by a new “tap & zip” service announced on Tuesday. On both of these days, Zip’s share price finished in the red.
Clearly, the market is expecting even more to justify its valuation. It’s no secret that Zip has a fairly stretched valuation, so maybe the share price movement makes sense.