NAB share price at $43: here’s how I would value them

Core Viewpoint - National Australia Bank Ltd (NAB) shares are currently priced at approximately $43 per share, raising questions about their true value and potential investment opportunities for dividend-seeking investors [1][2]. Group 1: Valuation Methods - The Price-Earnings (PE) ratio is a common valuation tool, comparing a company's share price to its earnings per share, with NAB's current PE ratio calculated at 19.2x against a sector average of 20x [4][6]. - A sector-adjusted PE valuation for NAB, based on its earnings per share and the average PE ratio of the banking sector, results in a valuation of $44.45 [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 valuation based on last year's dividend of $1.69, with a blended growth and risk rate, yields a share price valuation of $35.74, while an adjusted dividend of $1.71 raises it to $36.16 [11]. - When considering fully franked dividends, the valuation based on a forecast gross dividend 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 limited success from foreign competitors like HSBC [2][3]. - Bank shares are particularly favored by Australian investors for their dividend income, with a focus on franking credits [3].