Terminating coverage

SpareBank 1 Sørøst-Norge (No_rec, TP: NOK) - Discontinuing coverage

Given SOON’s pending merger with SRBNK and its expected subsequent delisting, we have discontinued coverage. Our last published recommendation, target price, and estimates should no longer be relied upon.

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...

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.

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.

Bank Brunch/PBB earnings, Sparebanken Vest 5yr covered, Green Raiffeis...

Deutsche Pfandbriefbank: loan quality pressures ease, preference for the shorter end of the preferred senior curve. Sparebanken Vest issues after Norwegian covered outperformance. Sub-benchmark green senior preferred from Raiffeisen Bank Hungary

Bank Brunch/PBB earnings, Sparebanken Vest 5yr covered, Green Raiffeis...

Deutsche Pfandbriefbank: loan quality pressures ease, preference for the shorter end of the preferred senior curve. Sparebanken Vest issues after Norwegian covered outperformance. Sub-benchmark green senior preferred from Raiffeisen Bank Hungary

SpareBank 1 Sørøst-Norge (Hold, TP: NOK68.00) - Q1 ROE above target

Helped by dividends of NOK57m from the SB1 mortgage companies and moderate loan losses, SOON reported a Q1 ROE of 11.9% versus its >11% target. While still solid, ‘real NII’ fell marginally QOQ. With ~2.8%-points headroom to its capital requirement (including a 1% management buffer) at end-Q1, the bank has ample dividend capacity. We have cut our 2025–2026e EPS by ~2–3%, driven by lower NII. To remain in line with SRBNK’s agreed purchase price (0.48 SRBNK shares per SOON share + NOK4.3 DPS), we ...

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.

SpareBank 1 Sørøst-Norge (Hold, TP: NOK66.00) - SpareBank 1 Sør-Norge ...

Supported by sustained NII momentum, relatively modest cost inflation and loan-loss reversals, SOON reported Q4 ROE of 9.3%, despite somewhat soft non-interest income. The board proposed a 2023 DPS of NOK3.88, representing a ~70% payout ratio and a 6.2% dividend yield. To remain in line with SRBNK’s agreed purchase price (0.48 SRBNK shares per SOON share + NOK4.3 DPS), we have raised our target price to NOK66 (63), but reiterate our HOLD.

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...

SpareBank 1 Sørøst-Norge (Hold, TP: NOK61.00) - Set to form SpareBank ...

While reporting a Q3 ROE of 9.4% versus its >11% target, SOON announced it intends to merge with SRBNK to form SpareBank 1 Sør-Norge. With SRBNK set to pay an ~18% premium to yesterday’s closing price and the guidance for substantial capital, operational, and funding synergies, we view the merger as accretive. Being in line with SRBNK’s potential purchase price on our calculations, we reiterate our NOK61 target price, but have downgraded to HOLD (BUY) given today’s share price appreciation.

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

SpareBank 1 Sørøst-Norge (Buy, TP: NOK60.00) -

Boosted by ~13bp of loan loss reversals, SOON reported a Q2 ROE of 12.4%, above its >11% target. The board has decided to distribute the proposed additional DPS of NOK1.5, leaving the 2022 total payout ratio at ~91%. With an end-Q2 CET1 ratio of 19.4% versus its >17% internal target, we see scope for further generous dividend distributions. We have made only minor changes to our 2024–2025e EPS. Trading at a 2024e P/E of ~8.9x, we continue to find the valuation undemanding, 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

SpareBank 1 Sørøst-Norge (Buy, TP: NOK60.00) - Generous dividend capac...

Supported by further NII expansion and marginal loan-loss reversals, SOON reported a Q1 ROE of 10.4%, just below its 11% target. With an end-Q1 CET1 ratio of 19.3% (including 50% of YTD profits) versus its >17% internal target, we see scope for generous dividend distributions ahead. We have lowered our 2024–2025e EPS by ~2–3% driven by lower NII and fee income, and in turn trimmed our target price to NOK60 (61). However, given our ~10% 2024–2025e ROEs, we still find the valuation undemanding at ...