Vestjysk Bank - Looking into the bid from AL ahead of Q1

Mandatory bid of DKK 3. 45 per share is 7. 9x 22e adj. P/E Recent transactions were 12-13x P/E reflecting synergies Fair value range of DKK 2.

8-5. 5 including M&A VB board could struggle to recommend the mandatory bid AL lifting its stake to 61% (32%) leads to an upcoming mandatory bid for Vestjysk Bank. Despite statements from AL, we believe it will seek a merger at some point with DKK 200m in synergies per year attached and AL growing to the size of Spar Nord with a market share of 4-5%.

We do not view the bid as friendly, but we believe the board of Vestjysk will refrain from using its poison arrows (printing shares to preferred buyers), while it could struggle to recommend the bid of DKK 3. 45 per share. VB shareholders do not get a piece of the potential synergies The mandatory bid for Vestjysk Bank corresponds to a 2022e adj.

P/E of 7. 9x, while recent M&A transactions in the Danish banking sector point to 12-13x being more normal. Being very comfortable in negative control of Vestjysk Bank, AL likely sees no strong reason to pay for potential future synergies upfront.

We introduce a fair value range for Vestjysk Bank of DKK 2. 8-4. 8 stand alone and DKK 2.

8-5. 5 with 50% of the potential AL synergies on top. The top of the range corresponds to a 2022e adj.

P/E of 12. 5x, similar to recent M&A transactions. We have not added potential excessive write-downs from the DKK 3.

2bn write-down account (16% of gross lending) to our fair value range. Q1’21e with moderate loan losses, good activity and tax gain Our 2023e adj. EPS is unchanged.

Q1’21 is the first quarter for Vestjysk Bank to report including Den Jyske Sparekasse (DJS). We have factored in DKK 80m in merger costs in Q1’21 and a DKK 476m badwill gain from the DJS merger. We believe Q1’21 could show pressure on lending volumes while fee activity is likely good.

We expect loan losses to come down to 37bp, despite Q1’21 likely being too early for net reversals from mink farmers. We now factor in a DKK.