BankNordik - All eyes fixed on the EO distributions
Q1’21 was in line with our expectations DKK 450m EO distributions coming up in Q2e Trading at a ’22e adj. P/E of 6. 1 with EO buybacks Q1 PBLL of DKK 38m in line, excess equity of DKK 765m BankNordik reported Q1’21 profit before loan losses (PBLL) of DKK 38m, which was close to our expectation of DKK 37m. NII was 2% ahead of ABGSCe despite lending decreasing by 2.
1% q-o-q, due to normal volatility in corporate lending on the Faroe Islands, while lending in Greenland was flat q-o-q. Fee income was slightly below ABGSCe but slightly up y-o-y. Low insurance income of DKK 7m was negatively impacted by the weather and a single incident in the transport sector (although up y-o-y).
Loan losses of DKK 3m (16bp p. a. ) related to a single Faroe exposure, while BankNordik maintains a balance of DKK 52m in upfront loan losses for COVID-19.
The divestment of the 11 Danish branches led to a DKK 77m EO gain in Q1’21 (DKK 10m for Q2e), while it drove CET1 up 840bp q-o-q to 31%. Including Q1 net profit and the upcoming SME discount, this implies BankNordik has distributable excess equity of DKK 765m. Many angles on large EO distribution to be announced in Q2e BankNordik reiterated its guidance for a 2021 net profit of DKK 150m-200m: we are above with our estimate of DKK 207m.
We believe that BankNordik will address the planned DKK 700m in EO distributions flagged for 2021-2023 (DKK 450m for 2021) in the Q2’21 report and decide on the distributional type. The tax treatment of buybacks and dividends varies across the investor base, which BankNordik may try to solve with a two-step solution of 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 distribution.
In our estimates we stick with buybacks, as these could facilitate a government exit of its 35% stake in BankNordik. We acknowledge that the exit decision comes with political uncertainty attached, however.
