Bendigo & Adelaide Bank Ltd (Since Covid lows, the ASX: BEN ) share price has been a mainstay for some ASX investors. Is now the time to load up on BEN shares? Let’s take a look at one way to value bank shares.Bank shares like ANZ Banking Group, National Australia Bank Ltd (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA) are very popular in Australia because they tend to have a stable dividend history, and often pay franking credits.In this article, we’ll explain the basics of investing in ASX bank ...

price of Westpac Banking Corp (Right now, you could probably use Google or another data provider to see theof ASX: WBC ) is around $39 per share. But what are WBC shares really worth? How to get to an target valuation is one of the more popular questions our senior investment analysts get asked by Australian investors, especially those seeking dividend income. It’s not exclusive to Westpac Banking Corp, of course.Bank of Queensland Limited (ASX: BOQ) and National Australia Bank Ltd (ASX: NAB) are also very ...

Core Viewpoint - The Commonwealth Bank of Australia (CBA) share price is currently trading at approximately $170.38, making it one of the most actively traded shares on the ASX, which is significant as ASX bank shares constitute about one-third of the Australian stock market by market capitalization and the All Ordinaries Index [1]. Valuation Methods - The Price-to-Earnings (PE) ratio for CBA is calculated to be 30.3x based on its current share price and earnings per share (EPS) of $5.63, which is notably higher than the banking sector average PE of 20x [4][5]. - A sector-adjusted PE valuation for CBA, using the sector average PE ratio, results in a valuation of $112.03 [5]. - The Dividend Discount Model (DDM) is highlighted as a robust method for valuing bank shares, assuming consistent dividend growth [6][7]. - Using the DDM formula, the valuation of CBA shares is estimated at $98.33 based on last year's dividend of $4.65, with an adjusted dividend payment leading to a valuation of $100.66 [10]. - When considering fully franked dividends, the valuation increases to $143.80 using a forecast gross dividend payment of $6.80 [11]. Growth and Risk Rates - Different growth and risk rates yield varying valuations for CBA shares, with a 2% growth rate and a 6% risk rate resulting in a valuation of $119.00, while a 4% growth rate and a 10% risk rate yield a valuation of $59.50 [12]. - Analysts are encouraged to conduct extensive qualitative research, including assessments of growth strategies, economic indicators, and consumer sentiment, before finalizing their valuation models [13].

Core Viewpoint - ANZ shares are currently trading at approximately $33.96, and the long-term outlook suggests that shares with a consistent track record of profits, dividends, and cash flow tend to revert to their underlying price target [1][10]. Company Overview - ANZ Bank is a prominent financial institution in Australia and New Zealand, recognized as one of the Big Four banks in Australia and a leader in the New Zealand banking market, primarily generating revenue from mortgages, personal loans, and credit [2]. Workplace Culture - A positive workplace culture is essential for long-term investors, as it can enhance the retention of high-quality personnel, contributing to the financial success of the company [3]. - ANZ's workplace culture rating is 3.3 out of 5, which is above the ASX banking sector average of 3.1 [4]. Profitability Metrics - The net interest margin (NIM) is a critical measure of profitability for banks like ANZ, with the average NIM across ASX's major banks at 1.78%, while ANZ's NIM is 1.57%, indicating a lower-than-average return from lending [6][7]. - ANZ earned 78% of its total income from lending last year, underscoring the importance of NIM in assessing its financial performance [7]. Return on Equity - ANZ's return on equity (ROE) stands at 9.3%, slightly below the sector average of 9.35%, indicating the bank's profitability relative to its total shareholder equity [8]. Capital Adequacy - The common equity tier one (CET1) ratio for ANZ is 12.2%, which is better than the sector average, reflecting a strong capital buffer to protect against financial instability [9]. Dividend Valuation - The dividend discount model (DDM) estimates ANZ's share price at an average of $35.10, with an adjusted valuation of $35.74 based on expected future dividends of $1.69 per share, compared to the current share price of $33.96 [10][11]. - The DDM model suggests that ANZ shares may appear expensive, necessitating consideration of various risks and the potential benefits of dividends and franking credits [12].

Bank of Queensland Limited (The ASX: BOQ ) share price is in focus today (and just about every day, given it’s amongst the most traded ASX shares). The BOQ share price is currently trading around $7.27.ASX bank shares make up around one-third of the Aussie stock market, measured by the market cap and the All Ordinaries Index.Within the financial sector, ASX bank shares are far and away the most popular. We will step through the absolute basics of valuing a bank share like Bank of Queensland Limited. If you’ ...

Core Viewpoint - ANZ Banking Group is a leading bank in Australia and New Zealand, primarily generating revenue from mortgages, personal loans, and credit, with a focus on long-term financial success through workplace culture and employee retention [1][2]. Financial Performance - ANZ's net interest margin (NIM) is 1.57%, which is below the ASX banking sector average of 1.78%, indicating lower profitability from lending compared to peers [5]. - The bank earned 78% of its total income from lending last year, emphasizing the importance of NIM in assessing profitability [6]. - ANZ's return on equity (ROE) is 9.3%, slightly below the sector average of 9.35%, reflecting its efficiency in generating profit from shareholder equity [7]. Balance Sheet Strength - ANZ's common equity tier one (CET1) ratio is 12.2%, which is above the sector average, indicating a strong capital buffer to protect against financial instability [8]. Valuation Insights - Using a dividend discount model (DDM), the estimated average valuation of ANZ shares is $35.10, with an adjusted valuation of $35.74 based on forecast dividends, compared to the current share price of $32.94 [11][12].

Core Viewpoint - The current share price of Bank of Queensland Limited (BOQ) is around $7.14, and the valuation suggests that the shares may be undervalued based on dividend growth and franking credits [1][11]. Company Overview - BOQ is one of Australia's largest regional banks, operating nearly 200 branches across the country, with many branches managed by 'owner-managers' who are small business owners [2]. - The majority of BOQ's loans are comprised of mortgages, indicating a focus on residential lending [2]. Workplace Culture - A good workplace culture is essential for long-term financial success, as it can lead to better retention of high-quality personnel [3]. - BOQ's workplace culture rating is 2.6 out of 5, which is below the sector average of 3.1, suggesting potential challenges in employee satisfaction [4]. Financial Metrics - The net interest margin (NIM) is a critical measure of BOQ's profitability, with BOQ's NIM at 1.56%, lower than the ASX major banks' average of 1.78% [6]. - BOQ earned 93% of its total income from lending last year, highlighting the importance of lending performance [7]. - The return on equity (ROE) for BOQ is 4.7%, significantly below the sector average of 9.35%, indicating less efficient use of shareholder equity [8]. - BOQ's common equity tier one (CET1) ratio is 10.7%, which is also below the sector average, reflecting a weaker capital buffer [9]. Dividend Valuation - The dividend discount model (DDM) suggests an average valuation of BOQ shares at $7.19, with an adjusted valuation based on expected future dividends increasing to $7.40 [11]. - Considering gross dividend payments, the 'fair value' projection for BOQ shares rises to $10.57, indicating potential undervaluation based on dividend benefits [11].

Core Viewpoint - The article discusses the valuation of Commonwealth Bank of Australia (CBA) shares, emphasizing the complexity of accurately valuing bank shares and the importance of using multiple valuation methods. Valuation Methods - The Price-Earnings (PE) ratio is a common valuation metric, with CBA's current share price at $166.08 and an earnings per share (EPS) of $5.63, resulting in a PE ratio of 29.5x, compared to the banking sector average of 19x [3][5]. - A sector-adjusted PE valuation for CBA is calculated at $109.28 based on the average PE ratio of the banking sector [5]. Dividend Valuation - The Dividend Discount Model (DDM) is highlighted as a robust method for valuing bank shares due to consistent dividends [6][7]. - The DDM formula used is Share price = full-year dividend / (risk rate – dividend growth rate), with last year's dividend payment of $4.65 assumed to grow consistently [8]. - Valuations using different risk rates and growth assumptions yield a range of values, with a base valuation of $98.33 and an adjusted valuation of $100.66 based on an adjusted dividend payment of $4.76 [10]. Gross Dividend Valuation - Considering fully franked dividends, a gross dividend payment of $6.80 results in a valuation of $143.80 for CBA shares [11]. Sensitivity Analysis - A table illustrates the impact of varying growth rates (2% to 4%) and risk rates (6% to 11%) on share price valuations, showing a wide range of potential valuations [12]. Investment Considerations - When analyzing CBA shares, it is crucial to understand the bank's growth strategy, focusing on interest income versus non-interest income [12]. - Economic indicators such as unemployment, house prices, and consumer sentiment should be closely monitored [13]. - An assessment of the management team's effectiveness and company culture is also important for investment decisions [13].

Core Viewpoint - The article discusses the valuation of bank shares in Australia, particularly focusing on ANZ Banking Group and Westpac Banking Corp, highlighting the importance of dividend history and franking credits in investment decisions [1][2]. Valuation Techniques - The Price-Earnings (PE) ratio is a common method used to value bank shares, comparing a company's share price to its earnings per share [3][4]. - A comparison of a company's PE ratio with its sector average can indicate whether the share price is overvalued or undervalued [4]. - The article applies mean reversion by multiplying profits per share by the sector average PE ratio to estimate a fair value for bank shares [4][5]. Dividend Discount Model (DDM) - The DDM is highlighted as a suitable valuation method for banks due to their stable dividend payments, contrasting with growth-focused industries [6][7]. - Key inputs for DDM include the dividend per share, assumed annual growth rate (e.g., 2%), and required return (e.g., 7%) [7][9]. - The valuation formula is Share Price = Full-Year Dividend / (Risk Rate - Dividend Growth Rate), and it is recommended to use a range of assumptions for more balanced estimates [8][9]. Valuation Results for Westpac Banking Corp (WBC) - Using the current share price of WBC ($38.55) and its earnings per share ($1.92), the calculated PE ratio is 20.1x, compared to the sector average of 19x [5]. - The sector-adjusted PE valuation for WBC is estimated at $37.24 [5]. - The DDM approach yields a valuation of WBC shares at $35.10, adjusting for dividends results in a valuation of $34.05, while considering gross dividends (including franking credits) raises the valuation to $48.64 [10][11]. Growth and Risk Rate Analysis - The article provides a table showing various valuations based on different growth rates (2% to 4%) and risk rates (6% to 11%), indicating how these factors influence share price estimates [12]. - For example, at a 2% growth rate and a 6% risk rate, the valuation is $40.25, while at a 4% growth rate and a 10% risk rate, it drops to $20.13 [12]. Investment Considerations - The article emphasizes that while these models are useful, thorough qualitative research is essential before making investment decisions, including understanding growth strategies and economic indicators [13].

Core Viewpoint - The article discusses the valuation methods for Commonwealth Bank of Australia (CBA) shares, focusing on the price-earnings ratio (P/E) and the dividend discount model (DDM) as tools for assessing the bank's share price relative to its earnings and dividends. Valuation Methods - The P/E ratio compares a company's share price to its earnings per share, with a current CBA P/E ratio of 29.5x compared to the banking sector average of 19x, suggesting that CBA shares may be overvalued [5][8] - Analysts can use the principle of mean reversion to estimate a sector-adjusted PE valuation for CBA, resulting in a valuation of $108.93 based on its earnings per share [7][8] Dividend Valuation - The DDM forecasts future dividends instead of profits, with the last year's dividend of $4.65 assumed to grow at a rate of 2% to 4% [10][11] - Using a risk rate between 6% and 11%, the DDM yields a valuation range for CBA shares from $52.89 to $119.00, depending on growth assumptions [12][15] - Adjusting for gross dividends, including franking credits, results in a valuation of $143.80 based on a forecast gross dividend payment of $6.80 [14] Investment Appeal - CBA and other Australian banks are popular due to their reliable dividend history and franking credits, making them attractive for dividend investors [3] - The article emphasizes the importance of using multiple valuation methods and assumptions to account for uncertainty in share price valuations [11][15]