Morningstar | Danske Issues Profit Warning, Lowers Full-Year Guidance
Danske Bank issued a profit warning ahead of its second-quarter results, which are expected for release July 18. Most notably, the outlook range for 2019 net profits was reduced by DKK 1 billion, to DKK 13 billion-15 billion. Expenses are expected to come in around DKK 25.5 billion-26 billion for the full year, up from around DKK 25 billion previously. Management cited weak momentum in income generation driven by margin pressure and weak trading income in the second quarter, which is expected to continue in the second half of the year. Additionally, higher compliance and anti-money-laundering expenses weigh on results. In relation to the Flexinvest Fri case, in which about 87,000 customers were overcharged since 2017, the bank plans to book DKK 400 million in compensation charges. Preliminary second-quarter profits are expected around DKK 4 billion, including DKK 11.5 billion in total income and expenses of about DKK 6.7 billion. We reduce our fair value estimate to DKK 200 per share from DKK 210 as a result of the revised guidance. Our narrow moat and stable trend ratings are unchanged.The shares trade at a significant discount to our fair value estimate; however, we assign a very high fair value uncertainty rating to Danske in connection to the ongoing investigation into the bank's money-laundering issues in its former Estonian branch. Uncertainties around the timeline of these investigations and the potential outcomes are significant, and we therefore caution investors to look for a sufficient margin of safety before stepping in.
Danske Bank is a diversified financial services firm. Through its subsidiaries, Co.'s activities include the provision of banking, mortgage finance, insurance, real estate brokerage, asset masnagement and trading in fixed income products, foreign exchange and equities. Co. operates international retail bank operations in 15 countries, with an emphasis in the Nordic region. Co. divides its operations into five segments: Banking Activities, Danske Markets, Danske Capital, Danica Pension and Other Activities. As of Dec 31 2011, Co. had total assets of DKK3,424,403,000,000 and total deposits of DKK848,994,000,000.
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