Swedbank (Buy, TP: SEK265.00) - Generous dividends in the offing
The Q4 results further underscored Swedbank’s benefiting from higher interest rates, shown by an NII increase of 62% YOY with the highest quarterly combined margin since 2009. We have raised our 2023–2024e adj. EPS by c10%, our target price to SEK265 (250) and we reiterate our BUY. We continue to find the valuation attractive at a 2023e P/E of below 8x given a c15% ROE and likely higher payouts, expecting c12% total yield p.a. over 2023–2025 once the uncertainty related to AML investigations is resolved. Q4 review. We calculate Q4 ROE of 17.6% adjusted for several non-recurring items, up more than 5%-points YOY, largely reflecting the substantial improvement in NII due to the raised interest-rate environment. A 31% QOQ NII increase was the main highlight in the report, driven by expanding deposit margins from the higher central bank rates in Sweden and the eurozone in Q4. The NII in the Baltic and Swedish banking divisions showed the strongest sequential increases of 46% and 29%, respectively. The combined net interest margin (NII/(loans and deposits)) was 1.39% (annualised) in Q4, the highest since 2009. Capital distributions set to rise. While the proposed DPS of SEK9.75 for 2022 was in line with the 50% payout policy, we foresee substantially more generous payouts for future years. Swedbank expects a CET1 requirement of c15% by 2025 and targets a management buffer of 200bp by that point. As the Q4 CET1 ratio was 80bp above the target and with a muted loan growth outlook and thus a limited need to accumulate further capital, we believe Swedbank should distribute essentially all of its earnings for 2023–2025e, implying attractive annual total yields of 11-13%. While we have forecast all capital distributions through ordinary and extraordinary dividends, we acknowledge that Swedbank might also opt to use buybacks as well to distribute the capital. BUY reiterated and target price raised to SEK265. We have raised our 2023–2024e adj. EPS by c10%Swedbank provides financial services and products in its home markets of Sweden, Estonia, Latvia and Lithuania. Co. has four segments: Swedish Banking, which is responsible for all its Swedish customers except corporates and financial institutions; Large Corporates and Institutions, which is responsible for large corporates, financial institutions and banks as well as for trading and capital market products; Baltic Banking, which operates in Estonia, Latvia and Lithuania; and Group Functions and Other. At Dec 31 2013, Co. had 731 branches and 1,396 automated teller machines. Also as of such date, Co. had total assets of SEK1.82 trillion and deposits of SEK620.85 billion.
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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