Vestjysk Bank: Strong NII, cost execution to become visible - ABG

Strong NII momentum & large loan loss reversals in Q2
Underlying cost reductions still to filter into P&L
We maintain our FV range including M&A of DKK 2.8-5.6

Vestjysk Bank (VB) reported Q2’21 NII of DKK 207m, up 10% q-o-q (6pp help from DJS merger) and 2% above ABGSCe even though lending was down 2.5% q-o-q related to a credit clean-up; underlying NII appeared to have good momentum. Commission income of DKK 152m was 3% below ABGSCe, linked to loan transaction fee income and other fee income, while trading of DKK 25m was below ABGSCe of DKK 30m. Q2’21 costs of DKK 272m rose 2.5% y-o-y adj. for DJS (DKK 115m costs Q2’20) and DKK 29m EO items Q2’21. This beat ABGSCe mainly due to higher EO costs (DJS merger) and fewer synergies coming through in the P&L in Q2 than we expected. Net loan loss reversals Q2 of DKK 56m (133bp p.a.) were almost twice our expectations, driven by a DKK 140m net reversal in the other business segment, while VB charged DKK 74m loan losses for pork farmers in Q2 amid a significant drop in local prices for pork meat (down to DKK 9.1/KG last week). CET1 of 17.9% was in line with ABGSCe and 70bp was up q-o-q.

Our 2023e adj. EPS is up 1% (see page 3). We maintain our fair value range including M&A of DKK 2.8-5.6 per share. VB is trading at a 2022e adj. P/E of 7.7x while the share could see support from the M&A angle related to AL and potential synergies attached.

Länk till analysen i sin helhet: https://www.introduce.se/foretag/vestjysk-bank/Equity-research/2021/8/vestjysk-bank---strong-nii-cost-execution-to-become-visible/