Are BEN shares good value? 2 ways to value them

Core Insights - Bendigo & Adelaide Bank Ltd (ASX: BEN) is currently trading around $13, and analysts utilize various valuation tools to determine price targets for bank shares like BEN [1][3]. Valuation Models - The Price-Earnings Ratio (P/E) is a common tool used to compare a company's share price to its earnings per share, with a current P/E ratio for BEN calculated at 14.6x compared to the banking sector average of 20x [5][8]. - A sector-adjusted P/E valuation for BEN, based on its earnings per share of $0.87, results in a valuation of $17.46 [8]. - The Dividend Discount Model (DDM) is another approach that forecasts future dividends instead of profits, with the last year's dividend of $0.63 assumed to grow at a consistent rate [9][11]. Dividend Valuation - Using the DDM, the valuation of BEN shares is calculated at $13.32, and with an adjusted dividend payment of $0.65, the valuation increases to $13.75 [13]. - Considering fully franked dividends, the valuation based on a gross dividend payment of $0.93 results in a share price valuation of $19.64 [14]. Growth and Risk Assumptions - Different growth rates (2% to 4%) and risk rates (6% to 11%) yield varying valuations, with the highest valuation of $32.50 occurring at a 4% growth rate and a 6% risk rate [15]. - Simple valuation models can provide insights but are not perfect, and further analysis is recommended to improve valuation accuracy [15][16]. Financial Health Indicators - Monitoring the growth of total loans on the balance sheet is crucial, as rapid growth may indicate higher risk, while slow growth may suggest conservatism [17]. - Key areas to analyze include provisions for bad loans, assessment rules for bad loans, and sources of capital, with a focus on the cost of capital acquisition [18].