Vestjysk Bank - Upgrading the 2021 guidance post the AL bid - ABG

2021 net profit guidance upgraded to DKK 900-1,000m
Our FV range including M&A up to DKK 2.8-5.6 (2.7-5.5)
VB is trading at a 2022e adj. P/E of 7.8x

Today, Vestjysk Bank (VB) upgraded its guidance for 2021 net profit to DKK 900-1,000m (DKK 800-900m) while 2021 net profit excl. EO items for the DJS merger was upgraded to DKK 575-625m (DKK 500-550m). VB points to lower than expected loan loss charges (we now factor in a DKK 30m net reversal for Q2) and high fee income (we now estimate Q2’21 commissions of DKK 157m). Our interpretation of the net profit guidance going up more than the adj. guidance is that we can expect extraordinary costs of DKK 30m below the guided level of DKK 200m, of which DKK 116m was remaining for Q2’21-Q4’21 (now DKK 86m is left). We expect Q2’21 costs of DKK 233m, 24% down from Q1 due to less EO costs and synergies. We expect NII up 8% q-o-q due to 14 more days in Q2’21 including DJS, while lending could be a bit down due to the potential credit clean-up behind the lower than expected loan losses. We expect a Q2’21 CET1 of 18%, which is up 80bp sequentially.

The implied high Q2’21 net profit is behind our fair value range including M&A for VB increasing slightly to DKK 2.8-5.6 (2.7-5.5). Following the DKK 3.45 bid per share from Arbejdernes Landsbank (AL), the stake of AL was increased to ~73% (61%) as announced on 7 July. AL has stated that it will not seek a dividend for the coming period, and we now believe the 25% potential DPS payout for 2021 is unlikely. Thus, we remove the 25% DPS for 2021, while we keep a 50% DPS payout ratio for ’22-’23 to moderate the buildup of excess equity. We now estimate a 2023e CET1 of 20.3%, which is much higher than the 14.5 CET1 targeted by VB. Not paying DPS for 2021 is a drag on ‘23e RONAV (70bp down to 10.3%) but in our valuation we adjust for CET1 above 18.5%.

‘23e adj. EPS is unchanged (see page 3). VB is trading at a ‘22e adj. P/E of 7.8x 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---upgrading-the-2021-guidance-post-the-al-bid/