How to Value National Australia Bank (ASX:NAB) Shares Using Simple Methods | ASX200 Investor Guide

May 09, 2025 01:15 PM AEST | By Team Kalkine Media

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How to Value National Australia Bank (ASX:NAB) Shares Using Simple Methods | ASX200 Investor Guide — Image source: shutterstock

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Highlights

NAB's current PE ratio is below the banking sector average

Dividend-based valuation closely aligns with the current share price

Franking credits can significantly influence valuation outcomes

As one of the most prominent financial institutions on the ASX200, National Australia Bank (ASX:NAB) is frequently in focus among market watchers. With a current share price hovering around $36.37, it's worth exploring how NAB can be valued using some straightforward financial models.

Banking stocks are a dominant force on the Australian Securities Exchange, accounting for nearly a third of the market capitalisation in the All Ordinaries Index. Among the key components of the ASX300, banks like NAB, Australia and New Zealand Banking Group (ASX:ANZ), and others form the backbone of many portfolios, particularly those focused on ASX dividend stocks.

Price-to-Earnings (PE) Ratio Approach

A commonly used valuation metric is the price-to-earnings (PE) ratio, which compares the current share price with earnings per share (EPS). For NAB, the reported EPS for the FY24 financial year stands at $2.26. Using this figure, NAB's current PE ratio works out to 16.1x. This is slightly lower than the sector average PE of around 18x, suggesting that NAB might be priced more conservatively compared to its banking peers.

Taking this a step further, applying the sector-average PE to NAB’s earnings yields a valuation of approximately $40.23 per share.

Dividend Discount Model (DDM)

Another popular approach, particularly suited to stable dividend-paying institutions like NAB, is the Dividend Discount Model (DDM). This method estimates the present value of expected future dividends.

Using NAB’s full-year dividend of $1.69 and assuming a steady dividend growth with discount (or risk) rates between 6% and 11%, the DDM valuation arrives at a price of $35.74. If an adjusted dividend of $1.71 is used, the figure increases slightly to $36.16—very close to NAB’s current trading level.

For those taking franking credits into account, which are especially relevant for ASX300 investors who qualify for tax credits, the grossed-up dividend is estimated at $2.44. This adjustment pushes the DDM-based valuation to approximately $51.66.

Whether using a PE multiple comparison or dividend-focused valuation, these models serve as useful starting points when evaluating NAB’s potential. However, numbers tell only part of the story. In practice, comprehensive research, including macroeconomic trends, competitive positioning, and future earnings outlook, remains essential in understanding the full picture.

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