DnB Markets - Sparebanken Ost ASA (SPOG) Sparebanken Ã˜st (Hold, TP: NOK45.00) - NII momentum fading

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DnB Markets

Håkon Astrup

EUR 93.28 For Business Accounts Only

Sparebanken Ã˜st (Hold, TP: NOK45.00) - NII momentum fading

SPOG reported a mixed Q1, with EPS 19% above our estimate as lower loan-loss provisions offset soft NII. The bank expects NII pressure to mount as a result of the transition to lower interest rates, amplified by a low growth appetite. That said, SPOG should see some mitigating effects from its wholesale-tilted funding mix from Q2. We have trimmed our 2021â€“2022e EPS by ~2â€“3% on lower NII. We maintain our NOK45 target price, but have lowered our recommendation to HOLD (BUY) given the recent share price appreciation.

13/05/2020 15 EN

Underlying

Sparebanken Ost ASA

Sparebanken Ost (the Bank) is a Norway-based regional bank. The Bank is engaged in the provision of both banking and financial products and services to individuals and businesses. The Bank's primary market area is the lower part of Buskerud county and the Drammen region. Its product and service offering includes loans, cards, payment services, savings accounts, pension funds, life and non-life insurance, investment services and foreign exchange. As of December 31, 2011, the Bank had such subsidiaries, as Sparebanken Ost Boligkredit AS, a mortgage company; AS Financiering, a car financing company; Sparebanken Ost Eiendom AS, which was engaged in real estate development and operations, and Ost Prosjekt AS, a subsidiary supporting the Bank's activities. As of December 31, 2011, the Bank's largest shareholder was MP Pensjon (9.89%).

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NO0006222009 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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Scope for continued strong earnings

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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Sparebanken Øst (Hold, TP: NOK51.00) - Generous dividend capacity

Helped by solid NII and low loan losses, SPOG reported a Q4 ROE of 9.7%, despite sustained cost pressure. The board proposed a generous 2023 DPS of NOK5.4, implying a ~95% payout ratio and a 9.9% dividend yield. With the bank’s strong capital position (noting further upside potential from Basel IV; +4.0%-points guidance) and flexible dividend policy, combined with a more moderate growth outlook, we see scope for payout ratios to remain close to 100%. That said, trading at a dividend-adjusted 2025e P/E of ~9.1x, we continue to find the risk/reward more attractive elsewhere in the sector. We rei...

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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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Niklas Wetterling

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

We have upgraded Wihlborgs to BUY (HOLD) and raised our target price to SEK100 (90). We no longer see a near-term risk to the stock from material asset write-downs, but rather expect investors to focus on healthy momentum in lettings at Wihlborgs. With a positive outlook for Q1, we forecast strong net lettings, and are 3% above Infront consensus on profit from property management (PFPM). The results are due at 07:30 CET on 23 April.

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Johannes Grunselius

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

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Sparebanken Ã˜st (Hold, TP: NOK45.00) - NII momentum fading

Scope for continued strong earnings

Sparebanken Øst (Hold, TP: NOK51.00) - Generous dividend capacity

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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