BankNordik - Solving the capital repatriation puzzle
Divesting Denmark to free up a lot of capital Massive buybacks to accommodate Government exit Trading at a 22e adj. P/E of 5.6x; 20e P/NAV of 0.64x Selling 11 Danish branches to release DKK 0.7bn of capital On 22 December, BankNordik (BN) and Spar Nord announced the divestiture of BankNordik’s 11 Danish branches to Spar Nord. The sale was completed on 1 February 2021 and BankNordik is likely to book the Danish operations as discontinued in one-line already from 2020 (just one month of income in 2021e). BankNordik is paid DKK 255m goodwill for the branches which we see translating into a DKK 80m extraordinary gain in H1’21 (after SDC exit and other costs).
The deal is freeing up DKK 0.7bn of capital as the removed Danish exposure consumed ~33% of REA for credit risk, thus EO distributions are to be expected. We anticipate a good Q4 for BankNordik excluding Denmark, with stable NII, but note low loan losses and high trading income were implied by the improved net profit guidance on 8 January, up to DKK 160-170m (140-160m). We expect 2020 DPS of just DKK 3.7 (20% payout) due to Danish FSA recommendation on distributions (COVID-19).
DKK 800m in buybacks solves capital repatriation puzzle We solve the capital repatriation puzzle for BankNordik (see page 5) by factoring two buyback programmes of DKK 400m in 2021 and 2022 each allowing the Faroe government (and other shareholders) to exit BankNordik. The 35% stake of the Faroe government is currently worth DKK 0.5bn, so there is plenty room for other shareholders to participate. If the Faroe government no longer intended to divest, the capital repatriation would likely shift towards EO dividends, corresponding to DKK 84 per share.
A 22e P/E without buybacks but with the price adjusted for the EO DPS instead would be just 4.4x. 2022e adj. EPS is up 14% due to buybacks The 2022e adj.
EPS is up 14% (see page 3) due to DKK 800m in buybacks (55% of the market cap) in 2021e-2022e while 2022 net profit is down 31....