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...

SpareBank1 SR-Bank (Buy, TP: NOK161.00) - Merger announced after stron...

In addition to reporting a solid Q3 ROE of 14.5%, boosted by strong core revenues and loan-loss reversals, SRBNK announced its intention to merge with SpareBank 1 Sørøst-Norge (SOON) to form SpareBank 1 Sør-Norge. With the potential premium paid to SOON’s shareholders more than offset by the guided synergies related to capital (cNOK2.5bn) and operating/funding (cNOK150m annually), we find the merger accretive for both banks. We reiterate our BUY and NOK161 target price, finding the valuation att...

Bank Brunch/SR-Bank upgraded, Banco Santander grows in the US, perform...

SR-Bank upgraded at Moody's: 3/4yr preferred senior could benefit. Banco Santander seeks to grow its Corporate and Investment Bank. Bank bond performance overview

NII momentum to continue into 2024e

With recent repricing efforts yet to take full effect, we expect continued margin momentum for the rest of 2023 and into 2024. With additional support from relatively resilient asset quality, we see room for still-solid earnings for the sector ahead. Also, we believe enhanced profitability focus, comfortable capital positions and a more moderate growth outlook bode well for sustained generous dividend distributions. Trading at an average 2024e P/E of ~8.5x, we reiterate our positive sector view....

Norwegian bank survey 2023 - Supportive ROE focus

Helped by its NII-skewed income mix, the Møre og Romsdal market leader has been a key beneficiary of rising interest rates. With recent repricing efforts leaving scope for further margin momentum near-term, we estimate 2024–2025 ROEs roughly in line with the >11% target, despite elevated cost inflation. With approved model changes to be implemented and an updated Pillar 2 assessment expected by year-end, we see potential upside to its already comfortable capital headroom. We continue to find the...

Northern Lights

SpareBank1 SR-Bank (Buy, TP: NOK160.00) - CET1 ratio uptick in solid Q...

Fuelled by ~15bp of loan loss reversals, SRBNK reported a solid Q2 ROE of 14.6%, despite modest trading income. After a ~40bp QOQ CET1 ratio uptick to 17.8% at end-Q2, the bank is closing in on its pending requirement uplift – also noting potential CET1 capital relief from an updated Pillar 2 assessment. While we have trimmed our 2024–2025e EPS by ~1%, we continue to find the valuation attractive, with the stock trading at a 2024e P/E of ~8.5x. We reiterate our BUY and NOK160 target price.

Nordea to acquire Danske’s Norwegian retail portfolio

This morning, Nordea announced that it has entered into an agreement with Danske Bank to acquire its Norwegian retail portfolio, increasing its mortgage market share in Norway from ~11% to ~16%. At end-2022, Danske’s operations consisted of ~EUR18bn in lending, ~EUR4bn in deposits and ~EUR2bn of savings assets. The transaction is expected to close in Q4 2024 and the exact amount paid will be determined by the assets left on Danske’s balance sheet at that date. We expect further consolidation fro...

Strong ROE and valuation support

Boosted by the full impact of recent repricing efforts and the still-positive rate trajectory, we expect further margin momentum ahead. Moreover, with sound fundamentals boding well for relatively resilient asset quality, we see scope for continued solid earnings generation, despite greater cost pressure. At an average 2024e P/E of ~8.3x, we still see an attractive valuation for the banks we cover and reiterate our positive sector view. SRBNK is our top sector pick.

Northern Lights

SpareBank1 SR-Bank (Buy, TP: NOK154.00) - Solid underlying profitabili...

Supported by strong core revenues and modest loan losses, SRBNK reported a 12.3% Q1 ROE, despite low trading income and elevated cost inflation. As margins improved further, NII rose by 9.0% QOQ. With an end-Q1 CET1 ratio of 17.4%, we expect the bank to be able to meet a potential raised requirement from a 1% SIFI buffer with its current growth trajectory and dividend policy. We continue to find the valuation attractive at a 2023e P/B of ~1.0x, given our ~12–13% 2024–2025e ROEs, and reiterate ou...

Continued profitability momentum

With recent repricing efforts yet to take full effect and a still-positive rate trajectory, we expect margin gains to contribute to continued solid earnings generation in 2023. Moreover, helped by sound fundamentals, we also expect asset quality to remain relatively robust, and see limited risks of the Norwegian banks facing similar issues to the banks at the centre of the recent turmoil. Trading at an average dividend-adjusted 2024e P/E of ~7.6x, we still find the valuation attractive and reite...

Northern Lights

SpareBank1 SR-Bank (Buy, TP: NOK149.00) - Joining the >13% ROE race

While raising its long-term ROE target to >13%, SRBNK reported a Q4 ROE of 14.6%, supported by returned NII momentum (+15.3% QOQ). The board proposed a 2022 DPS of NOK7.0, implying a solid ~54% payout ratio and a 5.8% dividend yield. We have raised our 2023–2024e EPS by ~5–7%, driven by higher NII, and in turn increased our target price to NOK149 (141). Given our 2023–2024e ROEs of ~12–13%, we still find the valuation attractive at a 2023e P/B of ~1.06x, and reiterate our BUY.

Further repricing tailwinds ahead

With a further positive rate trajectory and recent repricing efforts set to take full effect, we see scope for margin tailwinds to continue to support earnings into 2023e. Given the comfortable headroom to fully phased-in capital requirements, we expect dividend distributions to remain rather generous, and estimate an average 2022 dividend yield of ~5.5% for the banks we cover. Trading at an average 2024e P/E of ~8.4x, we still find the valuation undemanding and thus reiterate our positive secto...