Svenska Handelsbanken (Buy, TP: SEK147.00) - Executing on cost efficie...

In our view, the main highlights of the Q4 report were the strong execution on cost efficiencies coupled with good growth in savings. The stock is trading at a 2025e P/E of below 9x, net of the proposed 2024 DPS of SEK15.00 (due end-March), which we find attractive given the low risk, excess capitalisation and good business momentum. We have made limited 2025–2026e EPS changes, and reiterate our BUY and SEK147 target price.

Let the yield lead the way

Let the yield lead the way In advance of the Q4 results, we see the best risk/reward in Handelsbanken and less attractive risk/reward in SEB, partly due to our expectations of dividend proposals versus consensus. We have made mostly modest adjustments to our estimates and target prices ahead of the Q4 results. Despite some multiples expansion in Q4, we still see attractive value in the sector, with solid valuation support at a 2025e sector P/E below 10x. We continue to see the capital returns as...

Svenska Handelsbanken (Buy, TP: SEK145.00) - High-yield outlook crysta...

The Q3 report further solidified the attractive yield outlook; we forecast SEK13.50 (previously SEK12.75) DPS for 2024 (c12% yield). The focus on cost efficiency is continuing to pay off, supportive of upside potential in the stock. We have raised our 2025–2026e EPS by c4% and our target price to SEK145 (140). We still find the low-risk earnings profile coupled with the high yield appealing, and hence reiterate our BUY.

Lower rates to drive higher multiples

We expect Q3 to see an accelerated NII decline and profitability pressure driven by central bank rate cuts. However, we still see attractive return potential in the sector, underpinned by high total sector yields of >10% in 2024–2026e and likely multiples expansion from a currently depressed sector P/E of c8.5x. We prefer the banks with more resilient profitability trends and the strongest capital distribution outlooks. On this basis, Nordea and Handelsbanken remain our top sector picks.

Multiple reasons to BUY

Our in-depth analysis of drivers of Swedish banks’ P/E ratios indicates multiples expansion in 2024–2026e, driven by: 1) lower interest rates; 2) a recovery in Swedish house prices; and 3) higher multiples for European bank peers. Our model suggests a sector P/E rise of c15% by 2026e, which coupled with high dividend yields would offer an annual total shareholder return (TSR) of 17% in 2024–2026e for the sector, despite the likely negative earnings trend. This supports our positive sector view, ...

Svenska Handelsbanken (Buy, TP: SEK140.00) - Leap in the right directi...

SHB ‘walked the talk’ in Q2 by executing on cost efficiencies as indicated earlier this year. Business momentum also improved, with falling funding costs and better volume and profitability trends in the underperforming Norwegian operation. We have raised our 2024–2026e EPS by c5–6% on higher NII and lower costs, and our target price to SEK140 (132). SHB remains our top pick of the large Swedish banks, given: 1) the most scope for efficiency improvements; 2) the most resilient NII outlook; and 3...

Attractive valuations despite ROE decline

We expect Q2 to show declining profitability (from lofty levels) in the sector, driven by central bank rate cuts and lingering cost inflation. However, we still see attractive shareholder return potential in the sector, underpinned by robust low-risk earnings, attractive valuations (2025e average P/E 10% in 2024–2026e. We keep our BUY ratings on the banks. Nordea and SHB remain our top sector picks.

How to navigate the NII downturn

Swedish Banks (, ) - Braced for NII downturn (71 pages)

Svenska Handelsbanken (Buy, TP: SEK138.00) - Not what we wanted to see

Given management’s stated commitment to improved cost efficiency, accelerating cost growth in Q1 was disappointing. NII also fell more than we expected, with management’s comments on increasing deposit competition in Sweden somewhat puzzling. Still, now valued below book with a healthy 11–12% ROE outlook for 2024–2026e (despite prospects of lower interest rates) and the 11–12% dividend yield set to hold, we find the valuation and risk/reward compelling. We have cut our 2024–2026e EPS by 3–5% and...

Q1 previews

While we believe the banks are past the NII peak, we forecast healthy and stable ROEs (c16% on average) in Q1, backed by rising commissions, good cost control and low loan losses. We still see attractive shareholder return potential in the sector, underpinned by robust earnings, attractive valuations (2025e average P/E 10% in 2024–2026e. We reiterate our positive sector view and BUYs on all four banks, with c30% average upside to our target prices. SHB remains our sector top pick.

Unveiling alpha

Our analysis concludes that adverse FX and valuation multiples trends have masked the banks’ superior underlying shareholder value creation versus other Swedish large caps in the past decade. Our scenario analysis, based on extrapolated underlying earnings, indicates 5%-points potential alpha per year versus the OMXS30 in the next 10 years, with further upside potential should banks’ valuation discounts narrow to historical levels. We prefer banks that can achieve balanced profitable growth to g...

Svenska Handelsbanken (Buy, TP: SEK142.00) - Green shoots on capital a...

We found new CEO Michael Green’s first results presentation encouraging, with greater clarity on capital ambitions and an emphasis on increased cost focus. The board proposed a generous 2023 DPS of SEK13; we forecast 2024–2026e DPS of SEK11-12, offering 9-12% dividend yields for the years ahead. Given SHB’s impressive long-term track record, conservative approach and overcapitalised balance sheet, we still see an attractive risk/reward at a 2025e P/E of 8.4x adjusted for the 2023 DPS (due 21 Mar...

Some dividends now, set for more later

We expect NII trends to have turned negative in Q4, and have cut our 2024-2025e EPS by an average c3% on the lowered interest rate outlook. Despite this, we still see attractive value in the sector, with solid valuation support at a 2024e sector P/E below 8x and attractive capital return potential, where we forecast one-third of sector market cap to be distributed in around two years. We reiterate our BUYs on all banks. In the Q4 results, we expect our sector top pick SHB to propose a 2023 DPS e...

Svenska Handelsbanken (Buy, TP: SEK143.00) - Now the capital please

Profitability remained strong in Q3, which, along with rising NII (up 4% QOQ) and robust asset quality, has led us to raise our 2024–2025e EPS by c3-4% and our target price to SEK143 (139). SHB still looks highly overcapitalised, and we believe a step up in capital distributions is overdue. Given the overcapitalisation and robust earnings, we continue to see an attractive risk/ reward at a 2024e P/E of 7.4x, and reiterate our BUY.

Northern Lights

Svenska Handelsbanken (Buy, TP: SEK138.00) - Slow and steady wins the ...

Q2 offered further evidence of rising profitability with a decade-high ROE of c15% on an overcapitalized balance sheet. We cut our 2023–2025e EPS 1-2% and reiterate our BUY and SEK138 target price. Though SHB’s cautious approach to capital and lending standards may weigh on near-term returns, we still believe its conservative approach has yielded superior returns at low risk long term. At a P/E of c7x, we believe the market is overlooking SHB’s robust earnings profile and capital distribution ca...

Swedish banks Q2 previews - Continued NII momentum

We expect the robust trends seen in recent quarters to have continued in Q2, with sustained strong credit quality and NII tailwinds from higher rates. We have raised our 2023–2025e EPS by 0–3% and our target price to SEK138 (137), and reiterate our BUY.

Q2 previews - Continued NII momentum

Swedish Banks (, ) - Continued NII momentum (12 pages)

NII set to decline (but that’s ok)

We expect Nordea to continue to build on favourable trends from recent quarters, with raised NII and robust asset quality driving it to its highest underlying profitability since before the 2008–2009 financial crisis. We believe the NII growth will abate and eventually reverse in the next few quarters, but given higher normalised interest rates coupled with a diversified asset base and strong cost control, Nordea seems on track to becoming a steady ≥15% ROE generator. We have cut our 2024–2025e ...

Northern Lights