DnB Markets - SpareBank 1 SR-Bank ASA (SRBNK) NII tailwind and activity picking up

Report

DnB Markets

Håkon Astrup

NII tailwind and activity picking up

Sparebank1 SR-Bank (SRBANK NO, Buy) - NII tailwind and activity picking up
(14 pages)

09/08/2017 14 EN

Underlying

SpareBank 1 SR-Bank ASA

Sparebank 1 SR Bank is a savings bank. Co.'s core activities are sales and brokering of financial products and services, as well as leasing and real estate brokering. Co. is organized in three divisions: The Retail Market Division; The Corporate Market Division; and The Capital Market Division Co. provides products and services in the fields of financing, investments, money transfers, pensions and life and non-life insurance.

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NO0010631567 Oslo Bors Norway

Provider

DnB Markets

DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.

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Analysts

Håkon Astrup

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Seeing support from still-high interest rates and sound fundamentals, we expect solid NII and robust asset quality to contribute to continued strong earnings generation for the banks, despite the stable and eventually falling key policy rate trajectory. Trading at an average 2025e P/E of ~8.5x (adjusted for undistributed 2023 dividends), we continue to find the valuation undemanding. We maintain a positive view on the sector and highlight SVEG as our top pick.

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SpareBank1 SR-Bank (Buy, TP: NOK163.00) - Strong Q4, but CET1 ratio downtick

Fuelled by 7.5% QOQ NII expansion, a NOK421m gain related to SB1 Markets and further loan-loss reversals, Q4 ROE was a strong 19.7%, despite a negative contribution from SB1 Gruppen and elevated cost inflation. That said, while completing the cNOK1bn private placement and proposing a ~46% payout ratio (NOK7.5 DPS, 5.9% dividend yield), the CET1 ratio fell ~25bp QOQ, following increased deferred tax deductions. With our 2024–2025e EPS up ~1–4%, we have raised our target price to NOK163 (161). Trading at a dividend-adjusted 2025e P/E of ~7.7x, we still find the valuation attractive and reiterate...

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Scope for further generous distributions

With repricing efforts yet to take full effect and sound fundamentals boding well for manageable loan losses, we see prospects for solid earnings generation ahead, despite likely margin pressure from high levels longer-term. Given the banks’ solid capital positions, a more moderate growth outlook, and an enhanced profitability focus in the sector, we forecast further generous shareholder distributions, with an average dividend/ buyback yield of ~8% for 2023e. At an average 2024e P/E of ~8.4x, we reiterate our positive sector view, with SRBNK and SVEG as our top sector picks.

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Sandnes Sparebank - Initiation of coverage - The regional challenger

With cNOK29.5bn of lending at end-2023 and a pending merger with Hjelmeland Sparebank, Sandnes Sparebank has secured a strong market position in Rogaland. Supported by positive regional sentiment, distribution of customer dividends and potential capital tailwinds from Basel IV, in addition to still-favourable sector trends, we see scope for solid earnings generation. That said, trading at a 2025e P/E of ~9.0x, we find the valuation fair and initiate coverage with a HOLD and NOK104 target price.

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Wihlborgs (Buy, TP: SEK100.00) - Back up to BUY ahead of Q1

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NII tailwind and activity picking up

Scope for continued strong earnings

SpareBank1 SR-Bank (Buy, TP: NOK163.00) - Strong Q4, but CET1 ratio downtick

Scope for further generous distributions

Sandnes Sparebank - Initiation of coverage - The regional challenger

Wihlborgs (Buy, TP: SEK100.00) - Back up to BUY ahead of Q1

Norske Skog (Buy, TP: NOK54.00) - Moving in the right direction

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