Swedbank (Hold, TP: SEK147.00) - DPS cut to aggravate ROE trend
In our view, the main news in Swedbank’s Q2 report was its reduced payout policy, which has caused us to lower our 2020–2021e DPS by 33–13%. We expect the higher capital build to exacerbate the ongoing ROE decline (driven mainly by mortgage margin pressure and cost inflation), with a 2021e ROE at ~12% (down from ~15% currently). We reiterate HOLD, but have cut our target price to SEK147 (157). We find the shares fairly valued given current uncertainties, but still see 6–10% downside to consensus earnings for 2020–2021e.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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