Norwegian banks: Q3'24 outcome vs. expectations

Negative cost revisions saved by associates

NII in line but higher cost and losses; Positive associate revisions, muted by personnel cost; Valuation in line with fundamentals

Sparebank 1 SMN (Buy, TP: NOK175.00) - NII momentum

Solid NII from strong loan growth helped offset higher opex and loan losses in Q3, while the NOK452m gain from the merger of Fremtind and Eika Forsikring on 1 July helped drive Q3 ROE above 21%. Asset quality remains strong, and we expect moderate loan losses going forward. We have raised our 2025–2026e EPS by ~2% on continued NII momentum and increased our target price to NOK175 (172). We reiterate our BUY.

Weaker cost and lending to impact revisons

Adj. PTP -6% vs. ABGSCe, -5% vs. consenus. Higher cost lower lending to impact revisions. Cons. '24e-26e EPS chg. down 0-1%, stock down 0-2% today.

Trading at fair value with a good yield

Still-encouraging profitability outlook

Despite expecting some margin headwinds, we believe still-high interest rates, robust asset quality and a firm profitability focus bode well for sector earnings remaining strong. Adding generous dividend prospects, we continue to find the valuation undemanding, with a coverage average 2025e P/E of ~9.1x. While noting a slightly more nuanced perspective with some HOLD recommendations, we maintain our positive sector view.

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...

Sparebank 1 SMN (Hold, TP: NOK167.00) - Still-strong profitability

Helped by still-high NII and continued fee income momentum, MING reported a strong Q2 ROE of 15.4%, despite elevated cost inflation and somewhat soft trading income. Moreover, loan losses remained modest at NOK47m (8bp). That said, with the stock trading at a 2024e P/B of ~1.23x and 2025–2026e ROEs of ~13%, we continue to see a more attractive risk/reward elsewhere in the sector. Thus, we reiterate our HOLD and NOK167 target price.

Seeking profitable growth

Adj. PTP in line vs. ABGSCe, +1% vs.cons; EPS impacted negatively by margins; Valuation in line with fundamentals

Limited estimate revisions as report inline

Adj. PTP -1% vs. ABGSCe, +1% vs. cons. Higher lending, but softer margins made NII miss vs ABG. Cons. '24e-26e EPS chg. up 0-1%, stock up 0-1% today

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.

NIBOR path and mortgage margins in focus

Q2e: Adj. PTP NOK 1.35bn, +4% q-o-q. Estimates up on updated NIBOR-path, muted by mortgage margins. Valuation looks fair at 1.25x P/NAV: HOLD.

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.

Norwegian FSA suggest again stricter RW

N-FSA propose again to N-MoF to increase RW to 25% for mortgages, if implemented, largest impact for SVEG (-6%), least for DNB (-2%). DNB (HOLD) is our preferred Norwegian bank at the moment

Had a good run – time for a breather

Strong top-line & good AQ muted by higher costs. Adj. EPS up 5% and 1% amid higher NII & associates; costs weigh. Had a good run, and reflects fundamentals: down to HOLD (Buy).

Sparebank 1 SMN (Buy, TP: NOK167.00) - Sustained NII momentum

Supported by further NII expansion, strong non-interest income and low loan losses, Q1 ROE was 16.0%, despite sustained cost pressure. Adjusted for the NOK59m positive one-off in Q4, ‘real NII’ rose another 7.3% QOQ, even with one fewer interest day. We have raised our 2025–2026e EPS by ~1–2%, driven by higher NII, and our target price to NOK167 (161). With the stock trading at a 2025e P/E of ~9.1x, we continue to find the valuation attractive and reiterate our BUY.

Stronger income, lower losses but high costs

Adj. PTP beat of 4% vs. ABGSCe, 3% vs. cons (amid lower LLP). Strong quality income beat, but adj cost mute give PBLL beat 1%. Cons. '24e-26e EPS chg. up 1-2%, stock 1-3% 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.

Sparebank 1 SMN (Buy, TP: NOK161.00) - Continued core revenue momentum

Supported by sustained core revenue tailwinds, a NOK414m one-off gain from SpareBank 1 Markets and still-low loan losses, MING reported a strong Q4 ROE of 18.9%, despite elevated cost inflation. The board proposed a 2023 DPS of NOK12.0, implying a ~74% payout ratio and an 8.4% dividend yield. Trading at a 2025e dividend-adjusted P/E of ~8.3x, we continue to find the valuation undemanding and reiterate our BUY and NOK161 target price.

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...