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...

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 SMN (Buy, TP: NOK163.00) - Strengthened capital position

Supported by solid fee and other income as well as still-modest loan losses, MING reported a Q2 ROE of 15.1%, despite rather low trading income. Fuelled by the inclusion of SpareBank 1 Søre Sunnmøre, NII rose by 5.1% QOQ and lending volumes reached cNOK232bn (+8.5% QOQ). Moreover, the end-Q2 CET1 ratio was up ~90bp QOQ, with ~1.9% headroom to its 17.2% internal target, leaving generous dividend capacity. We continue to find the valuation undemanding at a 2024e P/E of ~9.0x, 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 SMN (Buy, TP: NOK161.00) - Repricing efforts taking effect

Boosted by strong NII momentum (+10% QOQ) and offshore reversals, MING reported a Q1 ROE in line with its 13% target, despite low trading income and one-off costs from the embezzlement case and the merger with SpareBank 1 Søre Sunnmøre. While the CET1 ratio came down ~70bp QOQ, the bank still has ~1%-point headroom to its 17.2% fully phased-in requirement. With the stock trading at a 2024e P/E of ~8.2x, we continue to find the valuation attractive. We have increased our 2024–2025e EPS by 1%, and...

Sparebanken 1 SMN: 1 director

A director at Sparebanken 1 SMN bought 8,200 shares at 121.800NOK and the significance rating of the trade was 56/100. 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 cle...

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

Sparebank 1 SMN (Buy, TP: NOK155.00) - NII comeback and 13% ROE target

As NII momentum returned (+13.2% QOQ), MING reported a Q4 ROE of 13.1%. Like SRBNK, MING followed DNB and raised its ROE target to 13% in conjunction with the report. In line with its dividend policy of a ~50% payout ratio, the board proposed a 2022 DPS of NOK6.5, implying a 5.0% dividend yield. We have raised our 2023–2024e EPS by ~5–8%, driven by higher NII, and in turn lifted our target price to NOK155 (150). At a 2024e P/E of ~8.4x, we continue to find the valuation attractive and reiterate ...

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

Northern Lights

SpareBank 1 SMN - Better costs and NII lift estimates

Q3: better costs from lower activities in Sp1 markets NII +2%, +1%, 0.5% for ‘22e, ‘23e and ‘24e We reiterate HOLD and prefer SR-Bank and SVEG

Sparebank 1 SMN (Buy, TP: NOK150.00) - Solid profitability prospects

Helped by improved payment-related fees, YOY cost reductions and still-moderate loan losses, MING reported a Q3 ROE of 10.9%, despite margin headwinds and the market turmoil weighing on capital markets-related revenues. We have reduced our 2023–2024e EPS by ~3–4%, driven by lower NII and the inclusion of SpareBank 1 Søre Sunnmøre, and in turn lowered our target price to NOK150 (155). However, at a 2023e P/E of ~8.3x, we continue to find the valuation attractive and reiterate our BUY.