Cost efficiency and growth story priced in

Q1: Adj. net profit +3% vs. ABGSCe and -4% vs. cons. on cost & tax. Adj. EPS up 2% and 4% for '24e-'25e (income, costs & LLP). At 1.5x P/NAV it's a well priced growth & efficiency story: HOLD (Buy).

Sparebanken Vest (Buy, TP: NOK139.00) - Continued strong ROE and growt...

Boosted by the tax advantage of customer dividends, continued strong lending growth, YOY cost reductions and robust asset quality, SVEG reported a Q1 ROE of 21.6%. Moreover, with the approval and implementation of new IRB risk models, in addition to strong earnings, the CET1 ratio rose ~70bp QOQ. Trading at a 2025e P/E of ~9.2x, we continue to find the valuation undemanding, and reiterate our BUY and NOK139 target price.

Q1: Stronger growth than expected

Adj. PTP beat of 2% vs. ABGSCe and cons. 2-7% better costs gives CI/ of ~25%. Cons. est. rev. likely +/-1%; Stock down 0-2%.

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 Vest (Buy, TP: NOK132.00) - Continued ROE outperformance

Boosted by further growth-driven NII expansion, firm cost efficiency and low loan losses, Q4 ROE was ~17.8%, despite somewhat low trading income. A 2023 DPS of NOK7.5 was proposed (~59% payout ratio, 6.5% dividend yield), while the CET1 ratio fell ~80bp QOQ to 16.8% (16.1% supervisory expectation). Trading at a dividend-adjusted 2025e P/E of ~7.9x, we continue to find the valuation attractive. We reiterate our BUY and have raised our target price to NOK132 (126).

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 Vest (Buy, TP: NOK122.00) - Enhanced NII tailwinds

Despite negative trading income, SVEG reported a strong Q3 ROE of 16.1%, helped by continued core revenue momentum and low loan losses. Fuelled by improved margins and strong lending growth (driven by Bulder), NII rose 13.1% QOQ. We have raised our 2024–2025e EPS by ~4–5% (primarily explained by higher NII), and increased our target price to NOK122 (120). With the stock trading at a 2024e P/E of ~8.2x, we continue to find the valuation attractive and reiterate our BUY.

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

Sparebanken Vest (Buy, TP: NOK119.00) - To assess extraordinary DPS po...

Supported by solid core revenues, firm cost efficiency and robust asset quality, SVEG reported another strong ROE of 15.1% in Q2, despite modest trading income. With ample headroom to capital requirements, the bank announced that the board would assess the potential for an extraordinary dividend distribution this autumn. We have raised our target price to NOK119 (115) on positive estimate revisions and reiterate our BUY.

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

Sparebanken Vest (Buy, TP: NOK111.00) - Another strong Q1

Supported by further NII expansion and still-modest loan losses, SVEG reported a Q1 ROE of 17% (14.2% excluding the tax benefit of customer dividends), despite sustained cost pressure. Following solid growth across segments and continued momentum in Bulder, lending volumes rose 3.0% QOQ. With ~1.65%-points headroom to capital requirements at end-Q1, we see scope for generous dividends ahead. We have trimmed our target price to NOK111 (112) on estimate revisions. However, at a 2024e P/E of ~8.2x,...

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

Sparebanken Vest (Buy, TP: NOK115.00) - Further core revenue momentum

Despite negative trading income, SVEG reported a Q4 ROE of 12.5%, above its >12% target, supported by strong core revenues. The board proposed a 2022 DPS of NOK5.5, implying a ~54% payout ratio (compared to its dividend policy of

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...

Sector Fast Comment - Norw. FSA proposes higher risk-weight floors

Proposal: RW-floor to 25% for mortgages, 45% for CRE Negative outcome could be mitigated with lower CET1-req The N-MoF to make final decision likely before year-end