Insurance income a drag in an otherwise strong Q3

Guidance upgrade is likely, EO DPS next Friday (EGM)

Trading at a 22e P/E of 9x and 6x adj. for ’21 DPS

Q3’21 to be hit by Faroese fires, but good NII sentiment q-o-q
We expect BankNordik to report Q3’21 profit before loan losses of DKK 40m, down from DKK 47m in Q3’20 due to fires on the Faroe Islands leading to low insurance income of DKK 4m in Q3’21e (DKK 18m Q3’20). We expect NII to rise to DKK 69m from DKK 66m in Q2’21 on lower funding costs and the re-pricing of retail deposits from August; we see flattish lending q-o-q. We expect fee income rising to DKK 17m in Q3’21 (DKK 15m in Q3’20) due to higher AUM and more referred mortgage lending. We see costs down 3% y-o-y while loan losses could see a small net reversal of DKK 5m. We expect CET1 10bp up q-o-q to 25.8%; the DKK 46.8 EO DPS to be decided on the EGM on 22 October is already deducted in CET1. The share is trading exclusive of the EO dividend on 25 October. Note the 35% Faroese dividend withholding tax.

Lower targets for C/I and CET1 ahead, ROE target up
BankNordik is guiding for a 2021 net profit of DKK 190-220m: Our estimate of DKK 221m is at the top end of guidance, with DKK 5m net loan loss reversals for H2’21. As such, we believe it is likely that BankNordik could raise its guidance as of Q3’21 (or before) despite the Faroese fires. BankNordik will revise its financial goals on Q3’21, and from an analytical point of view, the Cost/Income target could move lower from the current 55% (ABGSCe 50.5% for 2023e) while the ROE target could increase from the current 8%. With capital optimisation, the CET1 target of 23% could potentially be adjusted downwards. ROE (and EPS) help could then come as additional buybacks in 2022e-23e, where we already expect the two last tranches of DKK 125m per year from the divestment of 11 Danish branches to be distributed as buybacks.

2023e adj. EPS down 2%
2023e adj. EPS is down 2% (see page 3). We estimate a 2023e RONAV of 10.
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