Is Bendigo & Adelaide Bank (ASX:BEN) Undervalued at $11? A Fresh Look at Its True Worth

April 28, 2025 12:46 PM AEST | By Team Kalkine Media

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Is Bendigo & Adelaide Bank (ASX:BEN) Undervalued at $11? A Fresh Look at Its True Worth — Image source: shutterstock

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Highlights

BEN’s current valuation appears below banking sector averages.

Two key valuation models suggest a higher potential share price.

Importance of deeper research into banking sector fundamentals.

At the time of writing, Bendigo & Adelaide Bank (ASX:BEN) is trading around the $11 mark. While checking the latest price is simple, understanding the real underlying value of BEN shares requires a closer look at valuation models and sector dynamics.

Bank shares, including Bendigo & Adelaide Bank (BEN), Macquarie Group (ASX:MQG), and Bank of Queensland (ASX:BOQ), have long captured the attention of Australian investors, particularly those seeking steady dividend income. Within the Australian market, banks operate in a relatively stable environment, often referred to as an ‘oligopoly,’ giving them certain competitive advantages.

One basic method to evaluate a company's worth is using the Price-to-Earnings (PE) ratio. This metric compares a company's share price to its annual earnings. Presently, BEN shares are trading at a PE ratio of 12.5x, based on its FY24 earnings per share (EPS) of $0.87. This figure stands below the banking sector’s average PE ratio of 18x. Applying the sector average to BEN's earnings suggests a potential valuation around $15.29 per share.

Beyond PE ratios, another insightful approach is the Dividend Discount Model (DDM), often used to value banks. This model calculates a company's value based on expected future dividends, adjusted for risk and growth rates. Using BEN's recent full-year dividend of $0.63 and assuming modest dividend growth, a blended risk rate between 6% and 11% results in a valuation of approximately $13.32. Adjusting for a slightly higher forecast dividend pushes the valuation to around $13.75. Factoring in fully franked dividends, and including franking credits, could imply a grossed-up valuation closer to $19.64.

These valuation methods indicate that Bendigo & Adelaide Bank (BEN) could be priced attractively compared to its intrinsic value. However, valuation is just one piece of the puzzle. Understanding the broader economic environment, including factors like unemployment rates, housing market trends, and consumer sentiment, is critical. Additionally, assessing the bank’s strategic direction—whether it leans toward traditional lending or expands into non-interest revenue streams—remains essential.

Investors are encouraged to carefully examine the company’s growth strategies and management capabilities, ensuring a well-rounded view before making any investment decisions in the financial sector.

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