Are ANZ shares worth considering in December?

Core Viewpoint - ANZ Banking Group's share price is under scrutiny as investors attempt to establish a valuation for the company amidst fluctuating market conditions [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-Earnings Ratio (PER) is a common method for valuing bank shares, comparing a company's share price to its earnings per share [3] - Investors can utilize intuition regarding PE ratios, compare the PE ratio of ANZ with competitors like CBA, or apply a PE multiple to the company's earnings to derive a valuation [4] - ANZ's current share price is $35.33, with an earnings per share of $2.15, resulting in a PE ratio of 16.4x, which is below the banking sector average of 18x [5] Group 3: Dividend Discount Model (DDM) - The Dividend Discount Model (DDM) is considered a more reliable method for valuing banking sector companies, utilizing recent or forecasted dividends and a risk rate [6][7] - The DDM formula 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 a blended growth rate and risk rate between 6% and 11%, the DDM yields a valuation range for ANZ shares from $21.13 to $42.25 depending on the growth rate [11] Group 4: Valuation Comparison - The DDM valuation suggests ANZ shares are worth $35.10 based on a standard dividend, while an adjusted dividend payment increases the valuation to $35.74, compared to the current share price of $35.33 [10] - The analysis indicates that these valuation strategies are preliminary steps in assessing bank shares like ANZ, and investors may consider alternatives such as low-cost dividend-paying ETFs [12]