Vestjysk Bank - DJS merger to boost 2022e EPS by 30%
Shareholder friendly merger with DJS has been finalised We see a 2022 RONAV of 11.4%; DPS yield of 8.7% Trading at a 2022e adj. P/E of 5.9x, P/NAV 21e of 0.7x Shareholders rewarded with merger; cost-cutting has begun On 26 November, Vestjysk Bank (VB) announced a merger with Den Jyske Sparekasse (DJS). The merger is shareholder friendly, in our view, because it puts a much higher price on the DJS shares (DKK 122.7, P/B of 0.72x, P/E ’21e of 12x) than the market was willing to pay (DKK 88 last closing price before the merger), while Vestjysk Bank receives a 30% boost to 2022e adj. EPS.
The merger was finalised on 13 January and a 10% FTE reduction has already been announced. We estimate a ROE for the new bank of 11.7% in 2022 (RONAV 11.4%), well above the new company target of above 9%. We see a 2021 dividend yield of 5.7% (25% payout) increasing to 8.7% in 2022e (50% payout).
Many moving parts and strong capital generation We factor in DKK 135m cost synergies harvested by 2022, making up around half of the 78% boost we expect to Vestjysk’s 2022 PTP from the merger. In this report, we examine the moving parts of the merger that include CET1 (see overview page 6). We expect the new bank to start with a reported 15.9% CET1 in Q1’21 but believe it could climb sharply up to 18.7% by the end of 2021 vs.
the company target of 14.5%. VB can grow its CET1 ratio by up to 230bp per year before distributions. In our view, the new bank could see 12% exposure to milk producers and pork farmers but also a large write-down account of DKK 3.3bn to cover agri-risk, COVID-19 effects, Brexit etc.
Q4’20e is for the old Vestjysk Bank only, and here we expect moderate loan losses of DKK 10m, NII up 2% q-o-q despite flat lending, while commission down 11% y-o-y could be the main driver for profit before loan losses down 14% y-o-y. Consolidation focus could continue to support the share Our estimate for 2022 adj. EPS is up 30% due to the merger with DJS (see page 3).