Which ASX banking share is the cheapest today?

Which ASX 200 banking share is cheapest today? It’s certainly not Commonwealth Bank of Australia (ASX: CBA), so what is the market telling us?

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The wild ride continues for ASX banking shares in 2020. Bank shares like Commonwealth Bank of Australia (ASX: CBA) have had a topsy turvy year, to say the least. Despite yesterday’s massive 3.3% surge, CBA shares are still down more than 17% in 2020 so far. And that’s the best of the bunch.

CBA’s banking brethren have fared far worse. Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) are all down roughly 50% in 2020 so far. And that comes on top of a conspicuous lack of dividend payments from ASX bank shares this year, something ASX banking investors are not used to seeing from the big four.

Yes, CBA has managed to pay out a respectable $2.98 in dividends in 2020 (down from $4.31 in 2019). But NAB and ANZ have both paid out paltry dividends that pale in comparison to 2019’s levels. And Westpac has yet to even announce a dividend in 2020 after cancelling its interim payment earlier in the year. That nasty $1.3 billion fine won’t help either.

So which ASX bank is looking hot today? Let’s take a look at what the market is telling us about bank shares.

ASX banks – hot or not?

At the time of writing, CBA shares are asking $65.96 each. NAB is trading at $18.16, whereas Westpac is going for $17.25. ANZ brings up the rear at $17.78.

At this share price, CommBank is trading on a price-to-earnings (P/E) ratio of 16.13.

NAB? It’s current P/E ratio stands at 16.31. Westpac is on 12.95x earnings, while ANZ is asking a 12.1 ratio.

So on these simple metrics, it appears CommBank and NAB are the most expensive ASX bank shares today, while the market is heavily discounting ANZ and Westpac by comparison.

On one level, this seems fair. CBA is unquestionably the healthiest ASX bank today. It has been able to keep its dividends flowing while the other 3 majors have struggled. And sheer size is certainly an advantage in this uncertain world. But a P/E ratio of more than 16 is certainly a lot for a bank share. Other major banks around the world don’t normally trade anywhere near this valuation. For example, Bank of America Corp (NYSE: BAC) is one of the largest banks in the US and the world. Yet it is currently trading on a P/E ratio of 11.83

Whilst one might be able to justify CBA at these levels, in my view we can’t say the same of NAB. NAB has already diluted shareholders once this year with a massive $3.5 billion capital raise. As such, I’m not seeing much value in the NAB share price today.

Westpac I am not interested in, not least because Westpac has been one of the worst performing ASX shares this century so far. You could have picked up Westpac shares in the midst of the 2008/09 global financial crisis for around the same price as today. Think about that for a minute!

That leaves ANZ, which I actually think is looking like a good deal at today’s prices. ANZ hasn’t diluted shareholders in 2020 so far, and has paid a small dividend of 25 cents per share. Whilst I’m not personally interested in investing in the ASX banks this year, if I had to, ANZ would probably by my pick of the bunch.

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Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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