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 Sør (Buy, TP: NOK159.00) - Further NII and cost expansion

Helped by sustained NII expansion (+4.1% QOQ), SOR reported a Q4 ROE of 10.5%, despite negative trading income and elevated cost inflation. The board proposed a 2023 DPS of NOK10.0, implying a ~61% payout ratio (~50% policy) and a 6.9% dividend yield. With the stock trading at a dividend-adjusted 2025e P/E of 8.0x, we continue to find the valuation undemanding. We reiterate our BUY and NOK159 target price.

Sparebanken Sor: Update following rating affirmation and change of out...

Our credit view of this issuer reflects its resilient asset quality, with two-thirds, against some single borrower and its asset risk.

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 Sør (Buy, TP: NOK154.00) - Collecting further repricing be...

Helped by further NII expansion and eased cost inflation, SOR reported a Q3 ROE of 11.5%, despite a YOY decline in fees. With the report, the bank announced that the foundation intends to complete its planned sale of equity certificates in Q4 following the conversion from primary capital. We have raised our 2024–2025e EPS by ~2–3%, driven by higher NII and slightly lower costs, and edged up our target price to NOK154 (152). Given our ~10–11% 2024–2025e ROEs, we continue to find the valuation att...

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....

Sparebanken Sor: Key facts and statistics - H1 June 2023

A summary company profile, detailing Sparebanken Sor’s business operations and financial highlights.

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...

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Sparebanken Sør (Buy, TP: NOK151.00) - Q2 ROE consistent with target u...

Helped by loan loss reversals, SOR reported a solid Q2 ROE of 11.0%, despite low trading income. With the Q2 report, the bank raised its ROE target to >11% (>10%) for 2023 and >12% (>11%) by end-2025. Meanwhile, it lowered its internal CET1 ratio target to >16.5% (>16.7%), following the pending change in required capital mix to fulfil the Pillar 2 requirement. We have trimmed our target price to NOK151 (152) on estimate revisions. However, with the stock trading at a 2024e P/E of ~7.7x, we conti...

Sparebanken Sor: Update following the assignment of ratings to the ban...

Our credit view of Sparebanken Sor reflects its strong capital levels with a robust leverage ratio, constrained by its reliance on market funding.

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.

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Sparebanken Sør (Buy, TP: NOK150.00) - Benefiting from customer divide...

Benefiting from the introduction of customer dividends and loan-loss reversals, Sparebanken Sør reported a strong Q1 ROE of 12.5%. Though at a somewhat more modest pace compared to recent quarters, the NII expansion continued (+4.2% QOQ), while the cost pressure remained elevated. We have reduced our 2024–2025e EPS by ~5% driven by lower core revenues and higher costs, and have trimmed our target price to NOK150 (155). That said, given our ~10% 2024–2025e ROEs, we continue to find the valuation ...

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...

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Sparebanken Sør (Buy, TP: NOK147.00) - Continued margin improvement

Helped by sustained NII momentum (+12.5% QOQ) and trading income tailwinds, SOR reported a strong Q4 ROE of 12.8%, despite continued cost pressure. In line with its revised dividend policy of a ~50% payout ratio, the board proposed a 2022 DPS of NOK6.0 (4.7% dividend yield). We have raised our 2023–2024e EPS by ~6–5%, as higher NII was only partly offset by higher costs, and in turn increased our target price to NOK147 (141). At a 2024e P/E of ~7.8x, we still find the valuation attractive and 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...

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