Are ANZ shares worth considering in February?

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][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-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 them with sector averages, or apply a multiple to earnings per share to derive a valuation [4] - ANZ's current share price is $40.89, with an earnings per share of $2.15, resulting in a PE ratio of 19x, slightly below the banking sector average of 20x [5] Group 3: Dividend Discount Model (DDM) - The Dividend Discount Model (DDM) is a more robust valuation approach for banking companies, relying on 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 $18.78 to $84.50, depending on the growth assumptions [11] Group 4: Additional Considerations - Questions regarding net interest margins, regulatory challenges, and management culture are crucial when analyzing ANZ's long-term investment potential [12] - The assessment of management culture is emphasized as a significant factor in the decision-making process for long-term investments [12]