Mandatum Q4'24: Solid progress continues, but valuation becomes an issue

Translation: Original published in Finnish on 2/13/2025 at 8:45 pm EET.

In Q4, sales of the key wealth management solutions that drive Mandatum's value creation were again at an excellent level, with improved cost efficiency underpinning the earnings growth. A successful end to the year therefore led to an upward revision of our earnings forecasts. We also increased our profit distribution projections. As a result, we revise our target price to EUR 4.8 (was EUR 4.5) per share, in line with our dividend model. Relative to this, we believe that the share price has already assumed an unnecessarily steep advance and has pushed the expected return down to an insufficient level. Thus, we lower our recommendation to Reduce (previously Accumulate).

Solid progress at the end of the year

Mandatum published a Q4 result that was quite in line with our expectations. While the net finance result, which fluctuates with the capital markets, was softer than usual due to interest rate movements and the weak development of equity markets, the group's key performance indicators – growth in assets under management and the cost/income ratio – were very strong. The report was therefore clearly on the positive side for us. The main focus of sales was again on international institutional clients and credit products. Last year, Mandatum raised almost one billion euros in new assets, which corresponds to 8% of the capital at the end of the previous year. This means that the company exceeded its target of 5% of new sales. Mandatum's first steps on the stock market have proved to be convincing.

The biggest surprise was the proposal for the distribution of profits, where the company is proposing an ordinary dividend in line with our forecasts (EUR 0.33), plus an extra dividend of a similar amount for 2024.

Good momentum in asset management raised estimates slightly

We have significantly raised our fee result forecasts following strong progress, as both new sales and cost efficiency have consistently developed stronger than expected. Based on last year's outcome, we have also slightly increased our forecasts for group expenses. All in all, our forecasts for Mandatum's pre-tax profit over the next few years have increased by 1-3%.

In our forecasts, the asset management result will continue to grow significantly, but the group result will decline in the coming years as the decline in the interest rate base gradually weakens the return on the investment portfolio. Overall, we expect Mandatum's pre-tax profit to have already peaked and to gradually decline in the coming years. Our forecast is that the growth in asset management will not offset the earnings impact of the contracting with-profit portfolio until closer to the turn of the decade.

Profit distribution continues to be generous, although at a much more moderate level than in the financial year just ended. We have not yet included the excess capital from the PE exits in our profit distribution forecasts, as there is still considerable uncertainty about the timing and price tag of the exits. However, it is very possible that the exits will lead to further extra dividends in the coming years.

Valuation has taken an unnecessarily large head start

We have gauged Mandatum using the dividend model as it best reflects the company's high payout ratio and the unwinding of its overcapitalized balance sheet. Mandatum's expected return relies, somewhat exceptionally, to a large extent on a high dividend yield, as earnings will continue to decline structurally for several years to come. The value of the Mandatum share according to our dividend model, which takes into account the result generated by the business and the additional capital on the balance sheet, is around EUR 4.8 (was EUR 4.6). The increase since our last update is primarily explained by changes in our profit distribution forecasts and secondarily by increases in the fee result projections. Our dividend model indicates that the stock is already fully priced, so after the share price increase, the expected return has turned to an insufficient level.