Core Viewpoint - Westpac Banking Corp's share price is under scrutiny as ASX investors attempt to establish a target valuation for the company, utilizing various valuation methods such as PE ratios and dividend discount models [1][2]. Valuation Methods - The PE ratio is a common method for valuing bank shares, comparing the share price to earnings per share, with a current PE ratio for Westpac at 19.8x, compared to the banking sector average of 18x [3][5]. - A sector-adjusted PE valuation for Westpac, based on its earnings per share of $1.92, results in a valuation of $35.01 [5]. - The Dividend Discount Model (DDM) is another valuation approach, which considers the most recent dividends and assumes they will remain consistent or grow [6][7]. Dividend Valuation - Using the DDM formula, the valuation of Westpac shares is calculated based on last year's dividend payment of $1.66, with a risk rate between 6% and 11%, yielding a valuation range of $34.05 to $48.64 when considering gross dividends [10][11]. - The expected gross dividend payment of $2.30 leads to a higher valuation of $48.64, reflecting the benefits of fully franked dividends [11]. Growth and Risk Rates - Different growth rates (2% to 4%) and risk rates (6% to 11%) yield varying valuations, indicating the sensitivity of the share price to these assumptions [12]. - The analysis emphasizes the importance of understanding net interest margins and regulatory impacts on non-interest income for a comprehensive evaluation of the bank's performance [13]. Management and Culture - An assessment of Westpac's management and corporate culture is crucial, as cultural factors can influence long-term investment decisions [13].

ANZ Banking Group share price is on watch this month as ASX investors scramble to put a rough share valuation on the company. In this update, you’ll discover how to value a bank share like ANZ Banking Group, but remember this is just a quick version.Theshare price is on watch this month as ASX investors scramble to put a rough share valuation on the company. In this update, you’ll discover how to value a bank share like ANZ Banking Group, but remember this is just a quick version.Australia’s big banks make ...

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]