Are NAB shares worth considering in February?

Core Viewpoint - National Australia Bank Ltd's share price is under scrutiny as investors attempt to establish a price target for the company [1][2] 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] - Three methods to utilize the PE ratio include intuitive buying/selling based on PE levels, comparing the PE ratio with peers or sector averages, and calculating a valuation by multiplying earnings per share by an appropriate PE multiple [4] Group 3: NAB's Financial Metrics - The current share price of NAB is $42.96, with earnings per share for FY24 reported at $2.26, resulting in a PE ratio of 19x, which aligns with the banking sector average [5] - A sector-adjusted PE valuation based on NAB's earnings per share yields a valuation of $42.39 [5] Group 4: Dividend Valuation - The Dividend Discount Model (DDM) is a robust method for valuing banks, relying on recent or forecasted dividends and a risk rate [6][7] - Using last year's dividend payment of $1.69, with assumptions of consistent growth, the DDM valuation results in a share price of $35.74, which increases to $36.16 with an adjusted dividend of $1.71 [10] - Considering fully franked dividends, the valuation based on a gross dividend payment of $2.44 suggests a share price of $51.66 [11] Group 5: Growth and Risk Analysis - Various growth and risk rate scenarios yield a range of valuations for NAB shares, with a 6% risk rate and 2% growth rate suggesting a valuation of $42.75, while a 10% risk rate and 4% growth rate could lead to a valuation of $85.50 [12] - The analysis of NAB's net interest margins and regulatory challenges is crucial for understanding its financial health and potential for non-interest income [13] - Management assessment is also vital, as company culture plays a significant role in long-term investment decisions [13]