ANZ share price at $33: here’s how I would value them

Core Viewpoint - The valuation of ANZ Banking Group shares is a significant topic among Australian investors, particularly those interested in dividend income, with various methods available for assessment [1][2]. Group 1: Investment Appeal of Bank Shares - The financial/banking industry, including major players like Commonwealth Bank of Australia and National Australia Bank, is favored by Australian investors due to its oligopolistic nature and limited competition from international banks [3]. - ASX bank shares are particularly attractive to dividend investors because of the franking credits associated with dividends [3]. Group 2: Valuation Methods - The Price-Earnings (PE) ratio is a common valuation tool that compares a company's share price to its earnings per share, providing a basic measure of valuation [4]. - The PE ratio can be used in conjunction with other techniques to assess whether a share price is excessive or undervalued by comparing it to competitors [5]. - For ANZ, the current share price is $32.93, with an earnings per share of $2.15, resulting in a PE ratio of 15.3x, which is below the banking sector average of 19x. This leads to a sector-adjusted PE valuation of $41.63 [6]. Group 3: Dividend Valuation - The Dividend Discount Model (DDM) is highlighted as a more effective valuation method for banks, relying on past or forecasted dividends and assuming consistent growth [7][8]. - The DDM formula calculates share price based on dividends and a risk rate, with an average valuation for ANZ shares estimated at $35.10, increasing to $35.74 with an adjusted dividend payment [11]. - Various growth and risk rate scenarios yield a range of valuations, indicating the sensitivity of the share price to these assumptions [11].