Banks as an Investment by Sauli Vilén (PDF) - Inderes

Banks as an Investment Sauli Vilén, analyst Inderes overview Investor relations essentials and access to relevant target groups in one place. Products combining:...

Banks as an Investment Sauli Vilén, analyst Inderes overview Investor relations essentials and access to relevant target groups in one place. Products combining: Professionals with 1 deep domain expertise in IR and investing 2 Inderes technology platforms 3 Inderes investor Equity Research IR Events AGM IR Software media 140+ clients 300+ clients 100+ clients 40+ clients Independent research Online&hybrid Turnkey solution for IR web, press for all investors earnings events, virtual, hybrid and releases, IR-event CMDs and investor classic AGM platform events Banks are not normal businesses as they maintain and operate critical infrastructure for our society Banks are super regulated European banks have been a terrible sectors after GFC Drivers behind this development Regulation tsunami ZIRP and NIRP experiment Increased competition through digitalization Long tail of the GFC and Eurocrisis From GFC until the corona crisis, European banks were a terrible investment Eurobanks have outperformed mag7 during the past 3 years Eurobank profitability rocketed together with interest rates P/B still below 1x, markets don’t see current earnings level sustainable  Banking sector is probably the hardest sector to analyze in the whole world Source: Deutche Bank annual report 2022  Banking sector is probably the hardest sector to analyze in the whole world Equity ratio ~5% Source: Deutche Bank annual report 2022 Aktia as in investment case Aktia is more of an asset manager than a traditional bank Income mix 100 % 80 % 60 % 40 % 20 % 0% Net interest income Net comission income Other income Aktia has been mediocre investment over time, annual return since listing ~7% p.a. Besides 23-24 boom years, Aktia’s profitability as been moderate and growth sluggish Return of equity -% Total operating income MEUR 16% 350 14% 300 12% 250 10% 200 8% 150 6% 100 4% 50 2% 0 0% 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Besides poor market growth, Aktia is very conservative with its lending Loan losses/loan book 5y average Net interest income after loan losses 0,35% 2,5% 0,30% 2,0% 0,25% 0,20% 1,5% 0,15% 1,0% 0,10% 0,5% 0,05% 0,00% 0,0% 2017 2018 2019 2020 2021 2022 OmaSp OP-Ryhmä Aktia Ålandsbanken S-Pankki POP Pankki -ryhmä Säästöpankkiryhmä Performance in asset management has been poor Aktia’s capital position is strong Multiples look cheap Valuation 2019 2020 2021 2022 2023 2024e 2025e 2026e 2027e Share price 9,34 9,45 12,3 10,2 9,42 9,23 9,23 9,23 9,23 Market cap 645 657 882 736 684 673 673 673 673 P/E (adj.) 11,8 15,3 12,4 7,4 8,2 7,0 7,7 8,2 8,1 P/E 10,4 15,4 13,0 7,5 8,4 7,1 7,7 8,2 8,1 P/B 1,1 1,0 1,3 1,3 1,1 1,0 0,9 0,9 0,9 Payout ratio (%) 59,3 % 70,2 % 60,2 % 31,5 % 62,5 % 65,0 % 65,0 % 65,0 % 65,0 % Dividend yield-% 5,7 % 4,6 % 4,6 % 4,2 % 7,4 % 9,2 % 8,4 % 8,0 % 8,1 % Source: Inderes P/E (oik.) P/B Osinkotuotto-% 1,3 1,3 9,2 % 8,4 % 15,3 1,1 8,0 % 1,1 7,4 % 1,0 1,0 0,9 12,4 0,9 1,1 11,8 5,7 % 11,8 4,6 % 4,6 % 8,2 7,7 8,2 4,2 % 7,4 7,0 4,6 % 2019 2020 2021 2022 2023 2024e 2025e 2026e 2019 2020 2021 2022 2023 2024e 2025e 2026e 2019 2020 2021 2022 2023 2024e 2025e 2026e P/E (adj.) Median 2019 - 2023 P/B Median 2019 - 2023 Dividend yield-% Median 2019 - 2023 Peer group, tail of two worlds Peer group MCAP P/E div% P/B Yhtiö MEUR 2024e 2025e 2024e 2025e 2024e Evli 227 15,7 12,9 6,5 6,7 3,3 eQ 468 13,5 12,8 7,8 8,1 6,0 Taaleri 221 9,6 10,5 5,5 6,1 1,0 CapMan 314 14,7 14,0 8,1 7,4 1,9 Titanium 81 13,2 11,5 8,0 8,0 5,0 United Bankers 201 14,0 12,3 6,6 6,8 3,3 OmaSp 359 3,5 3,4 8,5 9,5 0,5 Nordea 39395 8,3 8,1 8,5 8,6 1,2 Danske 24596 8,2 7,9 7,5 7,7 1,0 Sydbank 2765 7,7 7,4 6,5 6,8 1,2 SEB 29451 10,0 9,4 6,2 6,2 1,4 Aktia (Inderes) 673 7,0 7,7 9,2 8,4 1,0 Average 11,2 10,4 6,7 6,8 2,1 Median 12,7 10,9 7,0 7,1 1,4 Dif vs. Median -45 % -29 % 31 % 19 % -30 % Source: Refinitiv / Inderes Investment case: how to get the potential out of Aktia? Once the lower interest rates kick in, Aktia’s ROE will once again be mediocre Aktia needs to grow more rapidly in order to improve its profitability Asset managements needs to perform better, more net flows More credit risk in the loan book? In order the stock to be repriced closer to asset management peers, Aktia needs to perform better operationally (above bank peer ROE-%) New strategy coming in H1’25 New management and resufling of the BoD Aktia could be part of the M&A game in Finnish financial sector Thank you! Please join our Community at inderes.fi/se/dk