NAB share price at $45: here’s how I would value them

Core Viewpoint - The article discusses the valuation of National Australia Bank Ltd (NAB) shares, highlighting the importance of understanding their true worth, especially for dividend-seeking investors. Group 1: Valuation Methods - The Price-Earnings (PE) ratio is a common tool for valuing shares, comparing a company's share price to its earnings per share, with NAB's current PE ratio at 19.7x compared to the banking sector average of 20x [4][6] - A sector-adjusted PE valuation for NAB, based on its earnings per share and the sector average PE, results in a valuation of $44.97 [6] - 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] Group 2: Dividend Valuation - Using a DDM approach, NAB's share price is calculated based on last year's dividend of $1.69, with valuations ranging from $35.74 to $36.16 depending on growth and risk rate assumptions [11][10] - When considering fully franked dividends, the valuation based on a gross dividend payment of $2.44 results in a share price valuation of $51.66 [12] Group 3: Market Context - The Australian banking sector, including NAB, operates in an oligopoly, with large banks favored by investors for their dividend income and stability [2][3] - Despite attempts by international banks to enter the Australian market, their success has been limited, reinforcing the dominance of the 'Big Four' banks [3]