Asset quality and costs better than expected – Updated 30 October
Sparekassen Sjælland-Fyn’s Q3 2018 profit before loan losses was DKK 69m, 25% better than our estimate and up 77% q/q. The major positive surprise was market value adjustments of DKK 25m, DKK 18m higher than our estimate, due to strong performance on sector shares. Another positive surprise was total costs, which were 4% below our estimate. This was mainly driven by amortisation and depreciation on intangibles and PPE, which that came in at DKK 11m, DKK 5m (31%) better than our estimate. On the negative side, activity was slightly below our expectations, which resulted in a 2% miss on NII and a 5% miss on commission income. Owing to the beat in the quarter, we lift our 2018E adjusted EPS by 19%, while we lower 2019E-20E adjusted EPS by ~2% to reflect the weaker NII and NCI trends. Our new fair value range is DKK 84-125 (DKK 88-128) per share.
Commissioned research: It’s harvest time
In recent years Sparekassen Sjælland-Fyn has merged with Sparekassen Faaborg, and raised capital via an IPO in 2015 and a rights issue in 2018. The bank has also reduced its credit risk and expanded its branch network. All these projects have, in our view, reduced the prioritisation of cost control. We find potential for the bank to optimise costs as branch openings are set to stop. Moreover, we expect to see income support from the branch network over the coming years as recently opened branches mature. Both cost efficiency and profitability are also key parameters of the ‘New Ways’ strategy plan, launched in November 2017. We arrive at a basecase fair value range of DKK 90-131, depending on the applied cost of equity and level of normalised loan losses.
Marketing material commissioned by Sparekassen Sjælland-Fyn.
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