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] Valuation Methods - The PE ratio is a common method for valuing bank shares, comparing the share price to earnings per share [3] - Investors can use intuition, compare with sector averages, or apply a PE multiple to earnings to determine valuation [4] - ANZ's current share price is $36.42, with an earnings per share of $2.15, resulting in a PE ratio of 16.9x, lower than the sector average of 19x [5] Dividend Discount Model (DDM) - DDM is a traditional valuation model that uses dividends to estimate share value, factoring in a risk rate [6][7] - The formula for DDM is Share price = full-year dividend / (risk rate – dividend growth rate) [8] - Using a blended growth rate and risk rate between 6% and 11%, the average valuation for ANZ shares is $35.10, with an adjusted dividend leading to a valuation of $35.74 [10] Growth and Risk Analysis - Different growth and risk rate scenarios yield varying valuations, with a 2% growth rate and 6% risk rate suggesting a valuation of $42.25, while an 11% risk rate drops it to $18.78 [11] Additional Considerations - Evaluating net interest margins and regulatory responses is crucial for understanding ANZ's financial health [12] - Company culture is also a significant factor in long-term investment decisions, with ANZ's culture rated below perfect [12]

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] Valuation Methods - The PE ratio is a key metric for valuing bank shares, comparing share price to earnings per share, with a common approach being to buy shares if the PE is low and sell if it exceeds a certain threshold [3][4] - ANZ's current share price is $33.19, with an earnings per share of $2.15, resulting in a PE ratio of 15.4x, which is below the banking sector average of 19x [5] - A sector-adjusted PE valuation for ANZ, based on the average PE ratio, is calculated to be $41.81 [5] Dividend Discount Model (DDM) - The DDM is a robust valuation method for banks, using recent or forecasted dividends and a risk rate to estimate share price [6][7] - The formula for DDM 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 average valuation for ANZ shares is $35.10, which increases to $35.74 with an adjusted dividend payment of $1.69 [10] Growth and Risk Analysis - Different growth and risk rate scenarios yield a range of valuations, with a 6% risk rate and 2% growth rate suggesting a valuation of $42.25, while an 11% risk rate and 4% growth rate suggest a valuation of $24.14 [11] - The analysis emphasizes the importance of understanding net interest margins, regulatory challenges, and management culture when evaluating bank shares like ANZ [12]