Vestjysk Bank: Loan book cleaning is done, time to grow - ABG
This is a third party research report and does not necessarily reflect our views or values
First indication of campaign towards corporate customersIncome again reduced due to market value adjustmentsVestjysk now trading at a 2024e adj. P/E of 7.8x
First sign of the campaign to attract new corporate customersVestjysk’s report on 17 August will show the initial signs of their ability to attract more corporate customers. We expect a moderate lending growth of 1.5% q-o-q. NII could increase equally, depending on the timing of the lending growth. We expect Q2’22 fee income to be up 1% q-o-q primarily from increased payment services and loan fees, offsetting expected lower securities trading. Total costs are expected to stabilise around DKK 227m in the coming quarters after post-merger redundancies are completed and most of the current IT-investments are included in costs to BEC. Asset quality looks good with the main threat still being the bad but easing trade-off for pig farmers (5.3% of exposure), thus we expect loan loss reversals of DKK 25m, also based on Vestjysk’s large impairment account of DKK ~2bn (12% of gross lending). Vestjysk’s Q1 was affected by a loss on the bond portfolio, and the market conditions in Q2 leads to an increased expected loss on net trading income of DKK 58m. For the CET1 ratio we expect a modest increase of ~10bp in Q2.
FY ROE target looks realistic but struggling on cost targetWe estimate a 2022 profit before tax of DKK 622m in the middle of guidance of DKK 600-650m. Vestjysk’s 2022 ROE target above 9% seems likely to be achieved in our view, especially when factoring in a tax gain at the year-end which Vestjysk is planning to exploit towards 2026. However, we see difficulties for Vestjysk in reaching its FY target of a C/I ratio below 55% since the reported Q1 ratio came in at 75.3%. With no signs of costs reductions for the remainder of ’22, due to inflation and completed redundancies, we do not expect income to reach its target while our ‘22e is at a C/I ratio of 62.9%.
2024e adj. P/E at 7.9x without the ‘23e-‘24e tax gain...Läs mer på ABG Sundal Collier
First sign of the campaign to attract new corporate customersVestjysk’s report on 17 August will show the initial signs of their ability to attract more corporate customers. We expect a moderate lending growth of 1.5% q-o-q. NII could increase equally, depending on the timing of the lending growth. We expect Q2’22 fee income to be up 1% q-o-q primarily from increased payment services and loan fees, offsetting expected lower securities trading. Total costs are expected to stabilise around DKK 227m in the coming quarters after post-merger redundancies are completed and most of the current IT-investments are included in costs to BEC. Asset quality looks good with the main threat still being the bad but easing trade-off for pig farmers (5.3% of exposure), thus we expect loan loss reversals of DKK 25m, also based on Vestjysk’s large impairment account of DKK ~2bn (12% of gross lending). Vestjysk’s Q1 was affected by a loss on the bond portfolio, and the market conditions in Q2 leads to an increased expected loss on net trading income of DKK 58m. For the CET1 ratio we expect a modest increase of ~10bp in Q2.
FY ROE target looks realistic but struggling on cost targetWe estimate a 2022 profit before tax of DKK 622m in the middle of guidance of DKK 600-650m. Vestjysk’s 2022 ROE target above 9% seems likely to be achieved in our view, especially when factoring in a tax gain at the year-end which Vestjysk is planning to exploit towards 2026. However, we see difficulties for Vestjysk in reaching its FY target of a C/I ratio below 55% since the reported Q1 ratio came in at 75.3%. With no signs of costs reductions for the remainder of ’22, due to inflation and completed redundancies, we do not expect income to reach its target while our ‘22e is at a C/I ratio of 62.9%.
2024e adj. P/E at 7.9x without the ‘23e-‘24e tax gain...Läs mer på ABG Sundal Collier