BankNordik - ABGSC’s DK small/mid-cap seminar feedback
Moderate income growth and flat costs ahead Planning for DKK 700m EO distributions ‘21-‘23 Trading at a ‘22e adj. PE of 6. 2x; high buyback sensitivity Massively over-capitalised North Atlantic SIFI Today, BankNordik (BN) CEO Árni Ellefsen presented at our virtual Danish small/mid-cap seminar. BankNordik is headquartered in the Faroe Islands, where it holds around 42% of the bank market as a North Atlantic SIFI.
BankNordik has a small, rapidly growing operation in Greenland (22% market share), while 11 Danish branches have recently been divested to Spar Nord. BankNordik also operates its own non-life insurance company in the Faroe Islands (market share 33%). Following the divestment of the Danish business, BankNordik is massively over-capitalised with a pro forma CET1 of ~33% by the end of 2020, this leads to BN planning for DKK 700m EO distributions in ‘21-‘23.
EO distributions: Buybacks vs. DPS to be settled by H2’21 Ellefsen presented BankNordik’s equity story, which is rooted in its large market share on the Faroe Islands and in Greenland, as well as in its goal of delivering plain and relevant advisory services while driving an efficient organisation. He expects income (adj.
for the divested business) to grow moderately in 2021 while the CEO sees flat costs over the next years, which will help the C/I ratio attain the 55% target. He described domestic demand on the Faroe Islands and in Greenland as unaffected by COVID-19, but noted that tourism and exports had been affected. He also mentioned that there are currently no COVID-19 infections in either locale while upfront COVID-19 charges of DKK 52m have been charged.
Concerning the large upcoming distributions (DKK 450m for ‘21), he stated that the “buybacks vs. dividends” decision has not yet be made (expected Q2’21), and that BN is aware that the 35% Faroe dividend tax is a factor. He also said buybacks would still be a possibility, even if the Faroese government chooses not to divest its 35% stake in.