Translation: Original published in Finnish on 1/30/2025 at 7:53 pm EET

Nordea published a stronger Q4 result than we expected, which was explained by net interest income decreasing less than forecasted and strongly developed commission income. The forecast changes are moderate, although we revised our estimates for net interest income slightly downward. In light of the relatively stable earnings outlook, we believe the share valuation remains attractive, but we lower our recommendation to Accumulate (was Buy) following the recent share price increase. Our target price remains unchanged at EUR 12.5.

Year wrapped up with a good result

Nordea's operating expenses were quite well known based on previously released information, so the Q4 forecast overshoot came from the revenue side. Net interest income decreased less than we expected and commission income grew more strongly than anticipated, so Nordea’s Q4 result exceeded our estimates by some 5%. The bank’s guidance also offered a positive signal, as Nordea expects its ROE to exceed 15% this year.

As expected, a new share buyback program was not published, but the bank announced that it had already started a dialog with the supervisor to start the next program. We expect this to take place in H2'25. In 2026-2028, we expect some 3.5 BNEUR in share buybacks. In addition to share buybacks, we expect Nordea to distribute 65-70% of its earnings as dividends, in line with its dividend policy.

Guidance is challenging, but not impossible

We made moderate changes to our earnings forecasts after the Q4 report. We lowered our 2025 growth estimate for the loan portfolio due to persistently weak credit demand. Correspondingly, we raised our 2026 growth forecast, so the net impact of these was close to zero. We made a slightly larger change to our interest margin estimates, which are now more in line with the bank’s estimates. As a result, our net interest income estimates decreased by around 2%, and the impact on our EBIT forecasts was similar.

Overall, we expect Nordea's EBIT to decline in line with interest rates in the coming years, but ROE to remain slightly below the company's target level of around 15% this year. We still consider negative surprises possible, e.g., from bigger central bank interest rate cuts than the market expects or a deteriorating economic situation. Therefore, we consider our caution toward the company’s target level justified at this stage of the year. We note that the profitability level based on our estimates is still excellent and clearly exceeds the bank's cost of capital.

Next year, we forecast Nordea's ROE to decline to around 14%, which we consider to be a sustainable level for Nordea even in a lower market rate environment. As the net interest income declines, the bank's results will be supported by an increase in commission income, especially in asset and wealth management. In addition, the decline in interest rates should gradually support credit demand and return the bank to organic growth.

The bank is still available below its value on the stock market

Looking at the balance sheet, Nordea is valued at a P/B ratio of 1.2x. The valuation is moderate and, in our view, paints an overly pessimistic picture of the company's outlook. In our calculations, an acceptable valuation range for Nordea is around 1.3-1.5x, which would correspond to a value of EUR 11.8-13.6 per share. Similarly, relative to a peer group with a lower return on capital, the valuation can be considered unduly low. We, therefore, see clear upside in the valuation levels, which, together with the profit distribution of some 10%, offer investors a good expected return at the current share price with a moderate risk level.