Norwegian banks: Q3'24 outcome vs. expectations

Q3: Positive proforma revisions

Adj. proforma PTP in line with ABGSCe; Positive revisions muted by commision income and cost; Valuation is fair (HOLD)

SpareBank 1 Sør-Norge (Buy, TP: NOK160.00) - Strong final pre-merger q...

With a NOK452m gain from the merger of Fremtind and Eika Forsikring, but a NOK105m writedown in Folkeinvest and NOK64m of merger-related costs, the bank reported a strong Q3 ROE of 17.5% (13.6% adjusted). While loan losses were a somewhat elevated ~22bp, NII increased 2.4% QOQ. From an 18.3% end-Q3 pro forma CET1 ratio, it guided for a ~10bp benefit in Q4 (sale of SamSpar shares), ~40bp in Q1 (Basel IV) and another ~70bp in 2025 (IRB models). With the stock trading at a 2025e P/E of ~9.8x and lo...

Quarter impacted by higher cost and losses

Adj. PTP -7% vs. ABGSCe, -1% vs cons amid cost & LLP; Stronger lending growth, but weak deposit growth; Cons. EPS chg. likely down 1-3%, stock down 1-4%

Proforma normalised ROE >13%

Still-encouraging profitability outlook

Despite expecting some margin headwinds, we believe still-high interest rates, robust asset quality and a firm profitability focus bode well for sector earnings remaining strong. Adding generous dividend prospects, we continue to find the valuation undemanding, with a coverage average 2025e P/E of ~9.1x. While noting a slightly more nuanced perspective with some HOLD recommendations, we maintain our positive sector view.

2024 Norwegian bank survey - Sector trends remain promising

While the respondents unsurprisingly forecast margins to decline from current highs, our 11th annual survey of the 50 largest banks in Norway presents an upbeat outlook, in our view. In addition to robust asset quality, the banks expect a slight uptick in lending growth. Supported by a market-disciplining profitability focus and solid dividend potential, we still find the sector valuation undemanding at an average 2025e P/E of ~9.3x. Noting a slightly more nuanced perspective with some HOLD reco...

SpareBank1 SR-Bank (Buy, TP: NOK160.00) - Solid growth but slight marg...

Supported by still-high NII and solid fee income, SRBNK reported a strong Q2 ROE of 14.6%, despite somewhat soft trading income. With margin pressure mitigated by high activity (2.3% QOQ lending growth), NII was fairly flat QOQ, while fee income rose 4.4% YOY, even with the recent transfer of its capital markets operations to SpareBank 1 Markets. With the stock trading at a 2025e P/E of ~8.8x, we continue to find the valuation attractive. We reiterate our BUY and NOK160 target price.

More than enough capital post merger

Adj. PTP -1% vs. ABGSCe, but -5% vs cons (NII & loan losses). EPS down 3%, 4% and 2% for '24e/25e/26e (NII driven). Valuation starts to look more tempting ahead of the 1 Oct merger.

Negative revisions expected from NII

Adj. PTP +2% vs. ABGSCe, -3% vs cons amid NII & LLP. Stronger lending growth muted by softer margins. Cons. EPS chg. likely down 1-3%, stock likely to follow same trend

Norwegian banks Q2'24: NII still to peak

Sector trading at '24e- and 25e adj. P/Es of 8.5x and 8.8x. Higher-for-longer policy rate raises estimates for '25e-'26e. Prefer SR-Bank ahead of the Q2 results, SVEG's premium looks fair.

Best positioned to hold margins

Exposure to local construction bankruptcy gives flat PTP q-o-q. Best positioned to hold on to margins. Our preferred Norwegian bank exposure after recent drop.

Robust profitability outlook

With the key policy-rate trajectory indicating still-high interest rates, we see prospects for NII remaining at solid levels, despite expecting some margin pressure. Helped by additional support from robust asset quality, we expect continued strong sector profitability. Trading at an average 2025e P/E of ~8.9x, we continue to find the valuation undemanding and keep our positive sector view. SRBNK is our top sector pick.

Norwegian FSA suggest again stricter RW

N-FSA propose again to N-MoF to increase RW to 25% for mortgages, if implemented, largest impact for SVEG (-6%), least for DNB (-2%). DNB (HOLD) is our preferred Norwegian bank at the moment

SpareBank1 SR-Bank (Buy, TP: NOK158.00) - Solid growth and asset quali...

With NII remaining at high levels and modest loan losses, SRBNK reported a Q1 ROE of 14.6% versus its >13% target. Following strong lending growth of 2.3% QOQ, the CET1 ratio was flat QOQ, with the bank highlighting cNOK2.5bn synergy potential from the pending merger with SpareBank 1 Sørøst-Norge. We have made only minor changes to our 2025–2026e EPS. With the stock trading at a 2025e P/E of ~8.9x, we continue to find the valuation attractive. We reiterate our BUY and NOK158 target price.

In need of a higher ROE

Adj. PTP +10% vs. ABGSCe (lower cost and loan losses). EPS up +6%, +5% and 6% for '24e/25e/26e. Valuation in line with fundamentals: HOLD.

Stronger growth and better costs

Adj. PTP beat of 10% vs. ABGSCe, 2% vs cons. driven by lower loan losses and better costs as income just soft. Cons. EPS chg. likely down 1-3%, stock likely flat to -2% today

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.

SpareBank1 SR-Bank (Buy, TP: NOK163.00) - Strong Q4, but CET1 ratio do...

Fuelled by 7.5% QOQ NII expansion, a NOK421m gain related to SB1 Markets and further loan-loss reversals, Q4 ROE was a strong 19.7%, despite a negative contribution from SB1 Gruppen and elevated cost inflation. That said, while completing the cNOK1bn private placement and proposing a ~46% payout ratio (NOK7.5 DPS, 5.9% dividend yield), the CET1 ratio fell ~25bp QOQ, following increased deferred tax deductions. With our 2024–2025e EPS up ~1–4%, we have raised our target price to NOK163 (161). Tra...

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...