Sparebanken Sor (the Bank), formerly Sparebanken Pluss, is a Norway-based regional bank. In December 2013, the Company merged with Sparebanken Sor. It is engaged in the provision of both financial and banking products and services to individual and corporate customers. The Bank's offering includes such products and services as credit cards, loans, foreign exchange, different types of insurance, savings accounts, payment services and pension funds, as well as the NettBank online banking facility. The Bank is active through around 30 branches in the West-Agder area, the East-Agder area and Telemark. The Company's subsidiaries are Sormegleren and Sor Boligkreditt AS.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
Although regional competition, pressure on margins, and increasing IT-related costs are continuing to adversely affect HELG’s profitability, we expect a Q3 ROE of 7.7% (results due at 12:00 CET on 30 October) driven by higher costs and a negative revaluation effect of Frende. We reiterate our BUY recommendation and NOK89 target price on what we consider to be solid valuation support at the current share price level.
In our annual survey of Norway’s 50 largest banks, we find they anticipate stronger demand for corporate loans after some years with a selective growth strategy. Banks expect margins to remain relatively stable over the next 12 months, while losses should stay below normalised levels. Capital ratios are expected to remain stable, supporting both profitable growth and dividend capacity. We reiterate our positive view on the sector.
The Q3 results were broadly in line with our forecasts and consensus. However, as interest rate hedges dropped to SEK8bn (or c27%) of NIBD, we have cut our 2019e financing costs due to a higher ratio of short-term interest rates (and raised financial risk), but raised our 2020e on updated market interest rates. Given the short hedging ratio (2.8-year duration) and common shares ratio of only 18.6% in Q1 2019e, post thex potential takeover of Agora, we find the financial risk high. We repeat our HOLD recommendation and SEK11.6 target price.
The Estonian money laundering saga continues to affect Danske Bank, and we expect uncertainty to remain for several quarters. While we also ultimately expect meaningful fines from several regulators, we see solid valuation support. In our view the bank’s Nordic operations should continue to enjoy profitable growth, with an ROE above 10%. We reiterate BUY, but have reduced our target price to DKK185 (DKK235) ahead of Q3 (results due on 1 November at 08:00 CET).
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