Are WBC shares worth considering in November?

Core Viewpoint - Westpac Banking Corp's share price is under scrutiny as ASX investors attempt to establish a target valuation for the company [1] Group 1: Market Context - Australia's major banks constitute approximately 30% of the share market by market capitalization [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 considered to have implicit protection against 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 shares, comparing a company's share price to its earnings per share [3] - Three methods to utilize the PE ratio include intuitive buying/selling based on PE levels, comparing with sector averages, and calculating a valuation based on expected earnings and a chosen PE multiple [4] - Westpac's current share price is $37.95, with an earnings per share of $1.92, resulting in a PE ratio of 19.8x, which is above the banking sector average of 18x [5] Group 3: Dividend Discount Model (DDM) - The Dividend Discount Model (DDM) is a traditional and robust method for valuing banking companies [6][7] - DDM valuation involves using the most recent full-year dividends or forecast dividends, assuming consistent growth, and applying a risk rate for discounting future dividends [8][9] - Using a blended growth and risk rate, the average valuation for WBC shares is calculated at $35.10, while an adjusted dividend payment leads to a valuation of $34.05 [10] Group 4: Adjusted Valuation - Considering fully franked dividends, the valuation based on a gross dividend payment of $2.30 results in a share price valuation of $48.64 [11] - Various growth and risk rate scenarios yield a range of valuations, with a 6% risk rate and 2% growth rate suggesting a valuation of $40.25 [12] Group 5: Additional Considerations - The analysis of bank shares like Westpac should also consider alternative investment options, such as low-cost dividend-paying ETFs [12] - Key questions for further analysis include the sustainability of net interest margins and the management of regulatory challenges in pursuit of non-interest income [13] - Company culture is an important factor in long-term investment decisions, with Westpac's culture not rated as perfect [13]