…on top of suffering bond portfolio in Q3e
’24e EPS raised 7%; Below peers on 6.7x ‘24e adj. P/E
Another quarter of trailing trading income
Vestjysk’s downgrade of its net profit guidance on 26 September indicated that Q3 will be another quarter in which bond portfolio losses on rising interest rates are central to its case. We expect a loss of DKK 63m in Q3 vs. DKK 73m in Q2, and forecast slightly lower losses for Q4. On a positive note, Vestjysk’s core operations continue to develop well. For Q3’22e, we expect NII of DKK 206, equalling q-o-q growth of ~6% with further tailwinds expected in Q4 and ‘23e. Based on the full implementation of our expected rate path (50bp in October and 25bp in December) we increase ‘24e net profit by 6% and raise our ‘24e adj. EPS estimate by 7%. For Q3, we estimate that costs and commission income will be flat q-o-q. We expect loan loss reversals to continue in Q3 at DKK 18m compared to DKK 16m in Q2, and we expect this to be the case in Q4 as well before increasing loan losses in 2023e. We expect ~2% lending growth q-o-q from Vestjysk’s campaign towards new corporate customers.
Disposal of branches not readable in Q3 report
In Q3, Vestjysk sold off three branches in Southern Jutland due to their distance from Vestjysk’s main geographic area. Although the deal was made on 30 August, permission from the Danish FSA came on 3 October, which means that its effects will appear in Q4. For Q4, we estimate one-off income of DKK 9mlower cost from the 20 FTEs equalling DKK 4m and lower income from the sold customers. The sold customer portfolio consists of DKK ~400m in lending and DKK ~600m in deposits. The agricultural customers and the few large corporate customers in the bank are kept in Vestjysk.
Trading below peers on ’24e adj. P/E and P/BV
With our updated earnings scenario, we expect ‘22e net profit of DKK 533m (guidance DKK 500-600m). Vestjysk is currently trading at a ’24e adj. P/E of 6.7x vs. the peer average of 7.0x and ’24e P/BV of 0.59x, below the peer average of 0.82x.
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