Morningstar | SHB A Updated Forecasts and Estimates from 18 Jul 2018
Narrow-moat Handelsbanken posted net income of SEK 9.2 billion for the first half of 2018, translating into a 13% growth compared with the same period in 2017. Revenue growth was in line with our expectations, while cost growth tracked ahead of our full-year estimates. As a result, we increase our full-year estimate for operating costs to reflect the bank's expansion in the U.K. and Netherlands. The cost increase in 2018 is more than offset by the corporate tax rate reduction announced by the Swedish parliament--progressively from 22% to 20.6% in 2021. The overall effect on our valuation is an insignificant increase in the fair value estimate. Hence, we maintain our fair value estimate at SEK 121.If we compare the second quarter of 2018 with the second quarter of 2017, Handelsbanken's top line looks healthy, supported by decent net interest income growth at 3% and fee growth at 4% compared with last year. Net interest income was positively impacted by lending volume growth and improved deposits margins. Softer lending margins outside of Sweden had a negative impact on overall lending margins. Net fee and commission income growth was mainly driven by mutual funds and net payment and card commissions, partially offset by a decline in brokerage income. The run rate in revenue growth is, however, slowing down from the first quarter.
On the cost side, total expenses in the first half rose by 10% due to increased staff costs and other expenses. The 7% increase in staff costs rise was mainly due to staff recruitment in the U.K. and Netherlands. Other expenses rose 15%--driven by U.K. expansion. Loan loss provisions as a percentage of the gross loan book came in at 0.4%--slightly lower than we anticipated.
Svenska Handelsbanken is a commercial bank for both private and corporate customers. Co. has six home markets: Sweden, the U.K., Denmark, Finland, Norway and the Netherlands. Co. has four business areas: Handelsbanken Capital Markets, which includes operations for investment banking, asset management, and also pensions and insurance; Stadshypotek, a mortgage provider; Forestry and Farming, which provides financial advice to forest owners and farmers; and Handelsbanken Direkt, which is engaged in business and product development of standardised banking services for the private and corporate market. At Dec 31 2013, Co. had total assets of SEK 2.49 trillion and deposits of SEK 825.21 billion.
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