Presentation on theme: "Carnegie Securities Research Please see disclosures on the back of this document. Sparebank 1 Midt-Norge (NEUTRAL (Kjøp)) Above-average sector ROE at a."— Presentation transcript:
Carnegie Securities Research Please see disclosures on the back of this document. Sparebank 1 Midt-Norge (NEUTRAL (Kjøp)) Above-average sector ROE at a discount valuation Set for a revaluation up to NOK79 per share 6 September 2006 By Thomas Svendsen +47 22 00 93 54
Carnegie Securities Research2 Sparebank 1 Midt-Norge (MING): company profile Sparebank 1 Midt-Norge is the third-largest savings bank in Norway. –The bank has around 900 employees. It is a typical Norwegian regional bank and the largest in Trøndelag (in the middle of Norway) and today has around 70 branches and some 190,000 customers. –Through the acquisition of Romsdal Fellesbank it gained access to a distribution network of 10 branches in a new geographical area with a client base of 20,000. The bank has a 37-40% share of lending in Trøndelag and Romsdal. MING owns 19.5% of Sparebank 1 Group, which was established to secure the efficient production of financial services for regional member banks. Competitors include smaller savings banks, Fokus Bank (Danske Bank), DnB NOR and Nordea.
Carnegie Securities Research3 Sp. 1 Midt-Norge: lending distribution Commercial real estate has grown recently Large household portion gives balanced risks
Carnegie Securities Research4 Investment summary: attractive return at a discount We have upgraded Sparebank 1 Midt-Norge to NEUTRAL (Kjøp) after having rated it Underperform for quite some time. Sparebank 1 Midt-Norge is now trading at an 10-12% discount to the other PCCs, and should be set for a relative rebound –Target price of NOK79 per share means you should buy into the stock We expect the bank to report above sector average profitability and earnings growth ahead This will be facilitated by what we consider to be a successful acquisition of Romsdal Fellesbank, utilisation of the Sparebank 1 alliance as well as firm cost control
Carnegie Securities Research5 MING has been a laggard recently … DnB NOR MORG MING
Carnegie Securities Research6 … and is now priced at a solid discount to other PCCs Priced at a 10-12% P/E discount to the PCCs in our universe Should be set for a repricing up to NOK79 Dividend yield in line with sector at solid 6.1%
Carnegie Securities Research7 Has been yielding above-average ROE since 2004 We expect it to compare relatively well also in the future
Carnegie Securities Research8 Commissions stabilised at upper end of sector range Has outpaced all peers in terms of commission ratio Is very good at distributing savings products on its customer base Romsdal Fellesbank had a corresponding ratio of 13% in 2004. Penetrating this customer base further represents upside potential for MING
Carnegie Securities Research9 Balanced risk on net interest margin Margin squeeze in line with sector average Competitive environment in region appears to be stable
Carnegie Securities Research10 Period of cost problems left behind a long time ago We expect a slight increase in productivity in line with the sector average. Possible cost synergies in connection with Romsdal Fellesbank could represent further upside Cost problem addressed long time ago
Carnegie Securities Research11 In total: will report above-average profit growth
Carnegie Securities Research13 But why own a PCC at all when you get so diluted? Why pay up for a PCC when you can get Nordic large-cap banks with the right to all cash flow to infinity at a P/E of around 10x? Declining ratio of ownership No full ownership control
Carnegie Securities Research14 MING: main investment case risk factors Higher than expected margin squeeze Lower than expected lending volume growth Personnel costs getting out of control Higher than expected central bank interest rate hikes Higher than expected loan losses
Carnegie Securities Research15 The Carnegie Group Carnegie is an independent Nordic investment bank operating in Securities, Investment Banking and Asset Management & Private Banking. Carnegie provides a wide array of financial products and services to Nordic and international clients from offices in eight countries: Sweden, Denmark, Norway, Finland, Luxembourg, Switzerland, the UK and the US. Carnegie Investment Banking is the leading independent corporate finance advisor in the Nordic countries. Carnegie Asset Management and Private Banking provide financial services including asset management for selected institutions and private investors. The Carnegie Group was listed on the Stockholm Bourse on 1 June 2001. Rating and risk assessment structure Current rating system (as of 10 June 2003) Stock ratings: Carnegie stock ratings are relative to Carnegie´s coverage universe on a Nordic sector basis. Outperform (OP), the stock is expected to outperform the return on the Carnegie coverage universe of the Nordic Sector over the next six months. Neutral(N), the stock is expected to perform in line with the return on the Carnegie coverage universe of the Nordic Sector over the next six months. Underperform (U), the stock is expected to underperform the return on the Carnegie coverage universe of the Nordic Sector over the next six months. Other ratings: Not rated (NR), the investment rating, if any, has been suspended temporarily. Under review (UR), the investment rating, if any, has been suspended temporarily. Under bid (UB), the investment rating, if any, has been suspended temporarily. Sector view: Carnegie’s coverage universe on a Nordic sector basis is rated relative to the total Nordic market. Carnegie’s strategists in co-operation with the sector heads set the sector recommendation. Positive, The sector is expected to outperform the return on the total Nordic market over the next 6 months. Neutral The sector is expected to perform in line the return on the total Nordic market over the next 6 months. Negative: The sector is expected to underperform the return on the total Nordic market over the next 6 months. Risk assessment: The risk assessment is based on the analyst’s evaluation of the company’s equity beta based on the business risk (asset beta) and financial risk (gearing). Low risk: estimated equity beta 1.25. Previous rating system: Strong Buy (SB), the stock is expected to provide a return of greater than 20% over the next 6 months. Buy(B), the stock is expected to provide a return of between 10% and 20% over the next 6 months. Accumulate(ACC), the stock is expected to provide a return of between 5% and 10% over the next six month. Reduce(R), the stock is expected to provide a return of between 0% and 5% over the next 6 months. Sell(S), the stock is expected to provide a return of less than 0% over the next 6 months. Analyst Certification The research analyst or analysts responsible for the content of this report certify that, not withstanding the existence of any such potential conflicts of interests referred to herein, the views expressed in this report accurately reflect our personal views about the companies and securities covered. We further certify that we have not been, nor are or will be, receiving direct or indirect compensation related to the specific ratings or views contained in this report.
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