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.

Sparebanken Øst (Hold, TP: NOK51.00) - Generous dividend capacity

Helped by solid NII and low loan losses, SPOG reported a Q4 ROE of 9.7%, despite sustained cost pressure. The board proposed a generous 2023 DPS of NOK5.4, implying a ~95% payout ratio and a 9.9% dividend yield. With the bank’s strong capital position (noting further upside potential from Basel IV; +4.0%-points guidance) and flexible dividend policy, combined with a more moderate growth outlook, we see scope for payout ratios to remain close to 100%. That said, trading at a dividend-adjusted 202...

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...

Sparebanken Øst (Hold, TP: NOK51.00) - Enhanced NII momentum

Helped by further NII expansion and low loan losses, SPOG reported a Q3 ROE of ~10%, above its 9% target. With an end-Q3 CET1 ratio of 19.9% versus its lowered >15.62% internal target, we see scope for a combined 2023–2025e dividend yield of ~34% (~99% payout ratios). We have raised our 2024–2025e EPS by ~4–5%, driven by higher NII, and edged up our target price to NOK51 (49). That said, with the stock trading at a 2024e P/E of ~8.8x, we still see a more attractive risk/reward elsewhere in the s...

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...

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...

Sparebanken Øst (Hold, TP: NOK49.00) - Addressing capital efficiency

SPOG reported a Q2 ROE of 9.6%, supported by robust asset quality, while cost inflation remained elevated. The recent NII momentum continued, albeit at a more modest pace (+0.8% QOQ). Highlighting its solid capital position and low risk level, the bank raised its dividend payout policy to “up to 100%” for the coming years, while reiterating its “up to 50%” target long-term. We have lowered our 2024–2025e EPS by ~2–3%, driven by lower NII and higher costs, but raised our DPS estimates. At a 2024e...

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

Sparebanken Øst (Hold, TP: NOK49.00) - Scope for generous dividends

On the back of strong fee income and low loan losses, but somewhat elevated cost inflation, SPOG reported a Q1 ROE of 8.9%. Driven by further margin expansion, NII rose 4.9% QOQ, despite slight volume outflows. With an end-Q1 CET1 ratio of 20.4%, versus its 16.8% internal target, we see scope for above-policy dividends going forward. We have made only minor revisions to our 2024–2025e EPS, as higher costs were largely offset by higher fee income. With the stock trading at a 2024e P/E of ~8.6x, w...

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...

Sparebanken Ost: 1 director

A director at Sparebanken Ost bought 19,700 shares at 50.000NOK and the significance rating of the trade was 59/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two years clear...

Northern Lights

Sparebanken Øst (Hold, TP: NOK52.00) - Generous dividends

SPOG reported a Q4 ROE of 8% versus its reiterated 9% target, supported by a further margin improvement and low loan losses, while the negative lending growth trend continued. Addressing its ample capital headroom, the board proposed an above-policy 2022 DPS of NOK3.8 (~99% payout ratio, 7.8% dividend yield). We have raised our 2023–2024e EPS by ~7–5% on higher NII and in turn increased our target price to NOK52 (50). That said, at a 2024e P/E of ~9.5x, we see better risk/ reward elsewhere in th...

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...

Northern Lights

Sparebanken Øst (Hold, TP: NOK52.00) - Margin tailwinds in challenging...

Hampered by NOK21m negative trading income, SPOG reported a soft Q3 ROE of 5.2%. However, helped by improved deposit margins, NII rose 11.6% QOQ, despite volume outflows. While we still expect the 9% ROE target to remain challenging, we have raised our 2023–2024e EPS by ~6–9%, driven by higher NII. In turn, we have increased our target price to NOK52 (48). That said, we continue to find the valuation fair at a 2022e P/B of ~0.8x, given our ~8% 2023–2024 ROE forecasts, and reiterate our HOLD.

Solid fundamentals despite uncertainty

As rising interest rates and disciplined repricing create potential for further margin expansion, and relatively conservative lending books help mitigate the impact of the macroeconomic turbulence on asset quality, we continue to see scope for solid earnings generation ahead. Trading at what we view as an undemanding average 2023e P/E of ~8.6x, we reiterate our positive sector view. We again highlight SRBNK and MING as our top sector picks.

Set for further margin tailwinds

After a period of strong growth following the launch of ‘Nybygger.no’, SPOG has seen net volumes decline in recent quarters, emphasising focus on margin preservation and its expectation of lending growth converging towards overall credit growth over time. Meanwhile, highlighting unfavourable regulatory requirements for banks using standard models in Norway, it has lowered its ROE target from 10% to 9%. With the stock trading at a 2023e P/E of ~11.1x, we find a more attractive risk/reward elsewhe...