Are NAB shares worth considering in November?

Core Viewpoint - National Australia Bank Ltd's share price is under scrutiny as investors attempt to establish a price target for the company [1] Group 1: Market Context - Australia's major banks constitute approximately 30% of the share market by market capitalization, highlighting their significance in the financial landscape [2] - The popularity of ASX bank shares has been notable since the early 1990s, particularly following a recession and high mortgage interest rates exceeding 15% [2] - Banks are generally perceived as being 'implicitly' protected from total financial collapse, as their failure would pose significant political challenges [2] Group 2: Valuation Methods - The Price-to-Earnings (PE) ratio is a key metric for valuing bank shares, comparing a company's share price to its earnings per share [3] - Investors can utilize intuition regarding PE ratios, compare them with competitors like ANZ, or apply a multiple to the earnings per share to derive a valuation [4] - National Australia Bank's current share price is $43.27, with an earnings per share of $2.26, resulting in a PE ratio of 19.1x, slightly below the banking sector average of 20x [5] Group 3: Dividend Discount Model (DDM) - The Dividend Discount Model (DDM) is a robust method for valuing banking sector companies, relying on recent or forecasted dividends and a risk rate [6][7] - The formula for DDM valuation is Share price = full-year dividend / (risk rate – dividend growth rate), and it is advisable to calculate with various growth and risk assumptions [8] - Using last year's dividend of $1.69, the DDM valuation yields $35.74, while an adjusted dividend of $1.71 results in a valuation of $36.16, compared to the current share price of $43.27 [10] Group 4: Adjusted Valuation - Considering fully franked dividends, the valuation based on a gross dividend payment of $2.44 results in a share price valuation of $51.66 [11] - Various growth and risk rate scenarios yield a range of valuations, with a 6% risk rate and 4% growth rate suggesting a valuation of $85.50 [12] Group 5: Additional Considerations - When analyzing bank shares, it is crucial to assess net interest margins, regulatory challenges, and management quality [13] - National Australia Bank's corporate culture has been evaluated, indicating it is not perfect, which is a factor to consider for long-term investment decisions [13]