Solid solvency and volatile EPS Storebrand’s Q1

Sakset fra DNB engelske analyser.

STOREBRAND Solid solvency and volatile EPS Storebrand’s Q1 report missed market expectations: EPS adj. was c10% below consensus, causing the shares to sell off. We see the market reaction as overdone and have made only small changes to our 2020–2021e EPS as we consider the underlying earnings drivers to have been on par with expectations, while the miss can largely be ascribed to more volatile elements being negative in the quarter. We reiterate our BUY recommendation and NOK95 target price.
Asset management segment missed expectations. Most of the market’s focus on the report was on the Savings segment, which missed consensus by cNOK60m. From the reported results, the asset management arm appeared particularly weak. While we acknowledge the shortfall, we believe the underlying numbers do not strongly indicate a deteriorating trend when taking into account that: 1) Storebrand’s asset management segment has naturally high volatility from quarter to quarter. 2) Changed internal pricing between the life insurance entity and asset management moved cNOK20m from the asset management revenue line to the life insurance entity, cutting its costs. 3) The quarter started with low AUM after the turbulent markets in Q4. 4) Performance fees are not booked in each quarter, while costs for overperformance versus benchmarks are booked. And 5) No transaction fees were booked in Q1 (the normalised level is NOK10m). After making these adjustments, we believe the result was within a normal volatility span for Storebrand’s Savings segment. Storebrand is sticking to its NOK250m profit growth target in the asset management segment.
Solvency II ratio continues to beat expectations. The Solvency II ratio excluding transitional rules was 171% versus our expectation and consensus of 170%. Although the beat was marginal, it represented yet another indication that the markets’ assumptions with respect to solvency generation and dividend prospects are overly conservative and Storebrand may continue to surprise positively going forward.
10% dividend yield supports our SOTP-based NOK95 target price. We have made only small EPS estimate changes and reiterate our BUY recommendation. We believe the introduction of extraordinary dividends from 2020 will mark the start of more than a decade with dividend yields above 10% on the current share price. We believe this should make investors more aware of the NOK16bn we estimate will be paid out as dividends from the back book in the coming years.