Vestjysk Bank - In great shape ahead of upcoming AL bid
Good business momentum in the DJS merger quarter Agri optimism could be a factor behind strong guidance Bid from AL does not seem to reflect potential synergies High organic growth in Q1 amid lending margin pressure Vestjysk Bank reported sequential lending growth of 3.5% with Den Jyske Sparekasse (DJS) pro-forma consolidated in Q4’20, while organic lending growth for the old Vestjysk Bank may have been close to 6% in Q1’21. NII was 7% below ABGSCe, which was almost entirely explained by DJS’s consolidation from January 14 instead of January 1 (as we assumed), while more lending margin pressure than expected seemed to counter the positive lending volume surprise. Fee income was 5% below ABGSCe, explained by the consolidation date as well, while Q1 trading was high, at DKK 32m. The badwill gain from taking over DJS of DKK 477m in Q1 was in line with ABGSCe and so were costs of DKK 307m (DKK 69m DJS takeover costs).
Loan losses of DKK 22m (52bp p.a.) was higher than we expected despite a DKK 79m net reversal related to pork farmers, with other agriculture and SME lending behind the negative surprise. Vestjysk Bank booked a tax gain of DKK 82m in Q1’21 due to the takeover of DJS (ABGSCe DKK 70m). CET1 of 17.2% was 130bp above ABGSCe due to unexpected Q1 net profit consolidation.
Agri prices up leads to room for loan loss optimism ahead Vestjysk Bank reiterated its guidance for a 2021 net profit of DKK 500-550m excluding EO items, while it is now guiding for a 2021 net profit of DKK 800-900m including EO items related to the takeover of DJS (ABGSCe DKK 831m). Vestjysk Bank now has a contingent tax asset of DKK 292m and a significant writedown account of DKK 3.1bn including DKK 0.8bn taken over from DJS. With significant writedowns on the agri-sector and a large increase in global milk prices and Danish pork prices (see page 4-5), we see room for loan loss optimism.
Upcoming AL bid at the low end of our fair value range The upcoming bid from Arbejdernes ....