BankNordik - PBLL improvement and large EO gain ahead

Q1 PBLL improvement (y-o-y) helped by insurance Large EO distributions coming up, decision in Q2’21 Trading at a ‘22e adj. PE of 6.1x with EO buybacks We expect a large EO gain, insurance income rise, flat costs We expect BankNordik to report Profit Before Loan Losses (PBLL) of DKK 37m in Q1’21, up from DKK 28m in Q1’20, due to a DKK 5m rise in insurance income on milder Faroese storms (numbers exclude the 11 divested Danish branches). We expect NII to drop to DKK 63m in Q1’21 from DKK 65 in Q4’20 due to two fewer days in the quarter and funding costs to core NII from discontinued business from February 1, when Spar Nord took over the Danish branches; we see flattish lending q-o-q for the remaining business. We expect commissions to rise to DKK 18m in Q1’21 from DKK 16m in Q1’20 due to good activity.

We expect Q1 costs to be flat y-o-y with loan losses of DKK 5m (DKK 10m net reversal Q4) due to COVID-19 impacting Faroe tourism and exports. We expect CET1 to climb 800bp q-o-q to 30.6% due to the divestment of the Danish business, with a DKK 2.6bn REA reduction in Q1e. We also see a DKK 75m EO gain Q1 from the transaction (consolidated in Q4e).

EO distribution plan may allow for different preferences Our estimate for 2021 net profit of DKK 205m is slightly above the guided range of DKK 150-200m. In its 2020 annual report, BankNordik pointed to planned EO dividends of DKK 450m in 2021 and DKK 125m per year in 2022-2023, related to the divestment of the Danish business. We expect these to be distributed as buybacks with the purpose of facilitating the Faroese government exiting its 35% stake, while BankNordik is expected to decide on the type of distribution in Q2’21.

The Faroese dividend tax of 35% implies large differences in shareholder distributional preferences, which could lead to an initial EO buyback programme with a flagged EO DPS paid after a reverse (buyback) tender auction. This would allow all shareholders to choose their favourite method of ....