Translation: Original published in Finnish on 8/6/2025 at 10:18 pm EEST.

Sampo's Q2 continued its long period of excellent development. While the earnings beat was largely due to investment returns, the underlying operational performance was very strong. Our estimates remain largely unchanged, and we expect Sampo to deliver robust earnings growth of approximately 10% over the next few years. However, the valuation level is starting to look challenging, and the recent rise in the share price has eaten into the stock's upside potential. We revise our target price to EUR 10.0 (was EUR 9.8) but lower our recommendation to Reduce (was Accumulate).

Excellent Q2 report

Sampo's insurance revenue increased by 10% to 2,264 MEUR, a bit faster than expected. As usual, the growth was driven by price increases in the Nordic countries and new sales in the UK. The insurance-technical profitability was excellent, and the combined ratio fell from the weak comparison period to 82.6%, as expected. As a result, the important underwriting result also increased significantly by 20% to 383 MEUR. The excellent underwriting result was underpinned by revenue growth, mild weather conditions in the Nordic countries, few large claims and a calm competitive environment. Overall, profit before taxes amounted to 526 MEUR, which significantly exceeded expectations. However, this outperformance was almost entirely due to investment returns, and operationally, the quarter was largely in line with our expectations and those of the market.

No changes to estimates, strong earnings growth expected

We have only made cosmetic changes to our earnings forecasts following the Q2 result. Compared to the market consensus prior to the Q2 report, our earnings forecasts are fully aligned, and we do not expect the consensus to make any significant changes to their forecasts. We expect the company to be able to grow its operational EPS by an average of over 10% in 2024-2028, while the company's own target is +7% per year. The main driver is, of course, the underwriting result, and the rest comes mainly from the share series, which is reduced by the purchase of own shares. 

Overall, Sampo's earnings growth is currently on a very strong footing. The company is growing rapidly on the basis of its strong digital capabilities, profitability is at an excellent level and the threat from competitive pressure has dissipated with lower interest rates. Although lower interest rates are putting pressure on the company's investment returns, this is of limited significance as they only account for a quarter of the group's result. As usual, profit distribution will remain generous, and we expect the basic dividend to grow steadily, in line with earnings per share (approximately 10% per year). In addition, the company will buy back its own shares annually using its excess capital, and these share buybacks will play a significant role in profit distribution in the coming years.

Valuation is becoming challenging and expected return is no longer sufficient

We continue to view P/E multiples of around 16-17x as an acceptable valuation level for Sampo, which is in line with the historical levels of key peers. Due to the brisk earnings growth we forecast for the coming years, valuation multiples are within our acceptable valuation range. The valuation levels are by no means cheap, but on the other hand, we believe they are justified given Sampo's excellent performance and strong earnings outlook. Compared to the main peers Gjensidige and Tryg, Sampo's pricing is quite well in line. The dividend will remain at 4-5% for the next few years, rising to 5-6% if share buybacks are taken into account. Overall, we see Sampo as correctly priced.

We previously considered the expected return on the share to be barely sufficient, and now, with the latest rise in the share price, we no longer believe the share will offer a sufficient expected return. We would like to point out that we also do not see any clear downward drivers for the share price, as the story of the company continues to progress excellently on track.