© Reuters.
SYDNEY – Shares of National Australia Bank (OTC:) Ltd. (ASX:NAB) and Westpac Banking (NYSE:) Corp. (ASX:WBC) are under the spotlight as analysts reassess their valuations in light of recent financial performances and market conditions. NAB’s shares, priced at $27.73, hold significant weight in the ASX bank shares category, influencing market capitalization and the All Ordinaries Index.
NAB’s price-to-earnings (PE) ratio stands at 12.1 times based on earnings per share (EPS) of $2.3, slightly above the banking sector’s average PE of 12 times. However, when adjusted for sector norms using the dividend discount model (DDM), which assumes a consistent dividend growth and incorporates a blended risk rate from 6% to 11%, NAB’s shares are estimated to be valued at $28.06. Utilizing last year’s dividend of $1.67, this method values NAB at $31.84 per share. With an expected increase in dividends to $1.71, the valuation adjusts to $30.65. When considering fully franked dividends and their associated franking credits based on a projected gross dividend of $2.44, the estimated value significantly jumps to $43.79 per share.
In contrast, Westpac has experienced a decline in its share price over the past year but showed resilience with a price above $23 in February. Despite the downturn, Westpac’s full-year 2023 results demonstrated strong growth with a net profit after tax (NPAT) surge of 26% to $7.2 billion and a notable EPS increase of 28% to $2.05. The bank’s loan portfolio grew to $773 billion, return on equity (ROE) improved to 10.1%, and the Common Equity Tier 1 (CET1) capital ratio was up at 12.4%.
These financial improvements came amidst stiff mortgage competition and were supported by operational efficiencies that resulted in a slight increase in margins and a strategic expense reduction by 1%. However, due to economic uncertainties, Westpac has increased its impairment provisions as a precautionary measure.
UBS analysts responded to Westpac’s performance by raising its price target to $21 from $20 while maintaining a sell rating, citing concerns over rising operational costs and net interest margin (NIM) pressures expected in the future. UBS estimates Westpac’s FY24 earnings multiplier at approximately 11.5 times with an anticipated grossed-up dividend yield near 9.5%.
Both banks are adjusting strategies and expectations in response to evolving economic conditions, with their stock valuations reflecting both the challenges and opportunities within Australia’s banking sector.
InvestingPro Insights
In light of the recent financial performances of National Australia Bank Ltd . (NAB) and Westpac Banking Corp. (WBC), InvestingPro provides valuable real-time data and tips to further understand the companies’ positions.
For NAB, InvestingPro data indicates a P/E ratio of 144.29 and a market cap of 2.2M USD. Despite some challenges, NAB has maintained dividend payments for 32 consecutive years, a noteworthy accomplishment for any company. This is further supported by the fact that NAB has been profitable over the last twelve months. However, InvestingPro Tips also highlight that the company is quickly burning through cash, which could be a potential concern for investors.
Westpac, on the other hand, has shown resilience in its financial performance. InvestingPro data reveals a P/E ratio of 10.03, suggesting a more attractive valuation compared to NAB. The company has consistently increased its earnings per share and has raised its dividend for 3 consecutive years. Nonetheless, Westpac is also noted for burning through cash quickly and may face dividend cuts due to poor earnings and cash flow, as per InvestingPro Tips.
In addition to these insights, InvestingPro offers many more tips and data points for these companies. Currently, there are 11 additional tips for NAB and 14 for Westpac available with an InvestingPro subscription. As part of a special Black Friday sale, subscriptions are now available at a discount of up to 55%. This is a great opportunity for investors seeking to make well-informed decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Read the full article here