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

Svenska Handelsbanken (Buy, TP: SEK150.00) - Only the share price show...

Trading below book value, the SHB share price suggests an elevated risk of distress or that the bank will fail to deliver returns above its cost of equity – neither of which we see any signs in the Q1 report. Rather, it gave further evidence of its robustness, with rising ROE (>14%), close to zero loan losses, and a low share of bad loans. We have raised our 2023–2025e EPS by 2–5%, our target price to SEK150 (147), and reiterate our BUY, finding the stock substantially undervalued at a P/E below...

Standing strong in turbulent times

Given SHB’s earnings stability, strong track record in risk management, and overcapitalisation, we find its 2023–2025e P/E of c7x much too low. We expect the robust trends seen in recent quarters to have continued in Q1, with a widening of deposit margins offering further NII tailwinds. We have raised 2023–2025e EPS by 0–3%, raise our target price to SEK147, and reiterate BUY.

Northern Lights

Svenska Handelsbanken (Buy, TP: SEK145.00) - Capital calibration delay...

Given SHB’s overcapitalisation, we find the DPS proposal for 2022 somewhat ungenerous, but maintain our belief it remains committed to lowering its capitalisation in the next few years, offering 10%+ capital returns per year. Given this and its proven resilience in previous economic downturns, we find a 2023e P/E below c8x too low. We have made only minor changes to our 2023–2024e EPS and reiterate our BUY and SEK145 target price.

Buybacks could be stepped up

Given our expectations of rising profitability and slowing lending growth, we believe SEB could either increase share buybacks or more actively pursue acquisitions to deploy its capital over the next two years. We see the positive NII trend continuing, with ~20% growth in 2023e. We find the valuation undemanding at a 2023e P/E of c8.5x, and reiterate our BUY, with a new target price of SEK142 (140).

Northern Lights

Svenska Handelsbanken (Buy, TP: SEK140.00) - Cruising on higher rates

Higher interest rates provided an even larger benefit in Q3 than expected, which we believe will help elevate and establish its ROE at 12%+ over 2023–2024. Given this, an overcapitalised balance sheet and resilience through economic downturns, we find a P/BV of c1x too low. We have raised our 2023–2024e EPS by c5% and our target price to SEK140 (134), and reiterate our BUY.

NII surge should convince skeptics

We reiterate our BUY and SEK134 target price, having made limited changes to our earnings forecasts ahead of the Q3 results. We expect higher interest rates to sustain NII momentum, and asset quality to remain strong, even in the event of deteriorating macro and falling property prices. We find the shares attractively valued at a 2023e P/E of c8x, 25% below the 5-year average.