Changes are happening - please bear with us while we update our site.

Changes are happening - please bear with us while we update our site.

Can the ANZ share price beat the ASX 200 (XJO)?

The ANZ Banking Group (ASX: ANZ) share price has risen 17% since the start of the year. Is the ANZ share price top value?
In this update I’ll explain how easy it can be to provide a share price valuation of an ASX bank share such as ANZ Banking Group (ASX: ANZ). That said, while it may seem ‘simple’ to create a valuation model of a business, no share valuation or forecast is guaranteed. If ‘value investing’ were as easy as what we’re about to show you, everyone would be rich!

Our largest bank shares make up more than one-third of the local share market, measured by the market capitalisation of the largest 200 companies in the S&P/ASX 200 index.

If you really want to understand how to value a dividend share, like a bank or REIT, you should consider watching the tutorial video from the analyst team at Rask Australia.

You can subscribe to the Rask Australia YouTube channel and receive the latest (and free) value investing videos by clicking here.

A proper PE ratio for ANZ shares

The price-earnings ratio, or PE ratio for short, is a basic but popular valuation ratio. It compares yearly profit (or ‘earnings’) to today’s share price (in the case of ANZ for example, $30.44). It’s not always the best way to value a mature company like a bank because other factors may be more important, like dividends, so it’s important to use more than just PE ratios for your analysis.

That said, it can be handy to compare PE ratios across shares from the same sector (banking) to determine what is reasonable — and what isn’t. For example, if ANZ had a PE ratio twice as high as CBA, you’d have to ask yourself if there’s any good reason it should be worth more.

If we take the ANZ share price today ($30.44), together with the earnings (aka profits) per share data from its 2023 financial year ($2.29), we can calculate the company’s PE ratio to be 13.3x. That compares to the banking sector average PE of 16x.

Next, take the profits per share (EPS) ($2.29) and multiply it by the average PE ratio for ANZ’s sector (Banking). This results in a ‘sector-adjusted’ PE valuation of $36.85.

ANZ share price analysis

A DDM, which stands for Dividend Discount Model, is a more interesting and robust way of valuing companies in the banking sector, given that the dividends are pretty consistent.

DDM valuation modeling is one of the oldest methods used on Wall Street to value companies, and it’s still used here in Australia by bank analysts. A DDM model takes the most recent full-year dividends (e.g. from last 12 months or LTM), or forecast dividends for next year, and then assumes the dividends grow at a consistent rate for a forecast period (e.g. 5 years or forever). The only other number you need is a ‘risk’ rate (e.g. 7%) which is explained further below.

To do the valuation, use this formula: Share price = full-year dividend / (risk rate – dividend growth rate). It’s a good idea to do the calculation with a few different growth and risk assumptions, then take the average valuation. This helps to account for some of the uncertainty.

To make this DDM easy to understand, we will assume last year’s dividend payment ($1.75) increases at a fixed rate each year.

Next, we pick the ‘risk’ rate or expected return rate. This is the rate at which we discount the future dividend payments back to today’s dollars. The higher the ‘risk’ rate, the lower the share price valuation.

We’ve used a blended rate for dividend growth and a risk rate between 6% and 11%, then got the average.

This simple DDM valuation of ANZ shares is $37.01. However, using an ‘adjusted’ dividend payment of $1.66 per share, the valuation goes to $35.10. The expected dividend valuation compares to ANZ Banking Group’s share price of $30.44. Since the company’s dividends are fully franked, you might choose to make one further adjustment and do the valuation based on a ‘gross’ dividend payment. That is, the cash dividends plus the franking credits (available to eligible shareholders). Using the forecast gross dividend payment ($2.37), our valuation of the ANZ share price comes out at $50.15.

Growth rate
2.00% 3.00% 4.00%
Risk rate
6.00% $41.50 $55.33 $83.00
7.00% $33.20 $41.50 $55.33
8.00% $27.67 $33.20 $41.50
9.00% $23.71 $27.67 $33.20
10.00% $20.75 $23.71 $27.67
11.00% $18.44 $20.75 $23.71

“)

ANZ share price: don’t stop with this

Our two models could be used as an introductory guide for how the valuation process works. Analysing a bank share like ANZ Banking Group is a complicated task. If we were looking at the shares and considering an investment, we would first want to know more about the bank’s growth strategy. For example, are they pursuing more lending (i.e. interest income) or more non-interest income (fees from financial advice, investment management, etc..

Next, take a close look at economic indicators like unemployment, house prices and consumer sentiment. Where are they headed? Finally, we believe it’s important to make an assessment of the management team. For example, when we pulled data on ANZ’s culture we found that it wasn’t a perfect 5/5. Culture is one thing to think carefully about.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

You can INSTANTLY access Owen’s report for FREE by CLICKING HERE NOW and creating a 100% FREE Rask Account.

(Psst. By creating a free Rask account, you’ll also get access to 15+ online courses, 1,000+ podcasts, invites to events, a weekly value investing newsletter and more!)

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

5%+ in passive income

Owen Rask’s investing report available

With bond ETFs like ASX:IAF and the S&P 500 riding high, now could be one of the best times to start earning passive income from a portfolio of shares and ETFs.

In this free analyst report, our Chief Investment Officer, Owen Rask, names 10 ASX stocks and ETFs to watch.

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Skip to content