BankNordik - First EO distribution will likely come as DPS
Q2 to show strong improvements in PBLL y-o-y We now expect EO DPS of DKK 47 alongside Q2 Trading at a 22e P/E of 9. 5x and 6. 2x adj. for ’21e DPS Strong Q2e with high commissions and costs down 3% y-o-y We expect Q2’21 profit before loan losses of DKK 46m.
This is up DKK 10m y-o-y due to commissions rising to DKK 17m (DKK 13m in Q2’20) and insurance income up to DKK 15m (DKK 12m Q2’20), while we expect costs 3% down y-o-y. We expect loan losses of about zero in Q2’21 with limited negative COVID-19 effects on the Faroe Islands and Greenland. We expect NII up to DKK 65m in Q2 (DKK 64m Q1) helped by lending growth of 1% q-o-q.
We expect BankNordik to pocket an added gain of DKK 10m in Q2 for divesting the Danish branches (DKK 77m in Q1) although we see this countered by a DKK 15m EO loss from compensation paid to Faroe customers for the company’s non-compliance with investment profiles for certain products. We expect CET1 down 30bp q-o-q to 30. 7% and 6.
5% down to 24. 5% if adjusted for the EO DPS of DKK 47 which we expect to be announced around Q2. We change the first EO distribution tranche to DPS In this report, we change our view that the first tranche (DKK 450m) of the DKK 700m EO distributions flagged for 2021-2023 will come as buybacks to facilitate the Faroe government exiting its 35% stake in BankNordik.
While the 35% ownership stake in BankNordik has just been shifted from the financing fund of 1992 to the government of the Faroe Islands, we believe the political system on the Faroe Islands is away for holiday, thus a potential decision of divesting shares in BankNordik before the distributional type is chosen and flagged at around 4 August is unlikely, in our view. We expect DPS of DKK 47 to be announced around Q2 instead. We note that the 35% Faroe dividend withholding tax is an element for investors to take into consideration.
Dividend adjusted P/E for 2022 of 6. 2x We lower 23e adj. EPS by 36%, driven by lower buybacks raising ’21e DPS to DKK 5.
