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Danske Bank

High Payout Ratios Will Limit Capital For Reinvestment

WA
Consensus Narrative from 16 Analysts
Published
November 07 2024
Updated
March 12 2025
Share
WarrenAI's Fair Value
DKK 247.19
3.4% undervalued intrinsic discount
12 Mar
DKK 238.80
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1Y
15.7%
7D
-0.8%

Key Takeaways

  • Muted lending demand in corporate and retail segments may limit revenue growth and dampen earnings momentum.
  • Focus on high payout ratios could limit capital for strategic reinvestment, affecting long-term earnings growth.
  • Danske Bank's robust financial performance and strategic advancements in technology, coupled with strong capital management, underpin stable earnings and support for shareholder value.

Catalysts

About Danske Bank
    Provides various banking products and services to corporate, institutional, and international clients.
What are the underlying business or industry changes driving this perspective?
  • The expectation for net interest income (NII) to slightly decline in 2025 due to lower market rates and timing of rate cuts could lead to reduced revenue growth potential.
  • A muted lending demand in both corporate and retail segments may limit revenue growth and dampen earnings momentum.
  • Cost projections remain stable, but continued investments in technology and IT could pressure net margins if revenue growth doesn't keep pace.
  • The focus on maintaining a high payout ratio, including dividends and share buybacks, may limit capital available for strategic reinvestment, affecting long-term earnings growth.
  • External macroeconomic uncertainties, such as potential trade conflicts impacting sector-specific growth, could introduce volatility in loan impairments and affect net profit margins adversely.

Danske Bank Earnings and Revenue Growth

Danske Bank Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming Danske Bank's revenue will decrease by 0.3% annually over the next 3 years.
  • Analysts assume that profit margins will shrink from 41.5% today to 37.6% in 3 years time.
  • Analysts expect earnings to reach DKK 21.6 billion (and earnings per share of DKK 27.78) by about March 2028, down from DKK 23.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting DKK25.7 billion in earnings, and the most bearish expecting DKK16.5 billion.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.5x on those 2028 earnings, up from 8.2x today. This future PE is greater than the current PE for the GB Banks industry at 7.3x.
  • Analysts expect the number of shares outstanding to decline by 2.62% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 5.98%, as per the Simply Wall St company report.

Danske Bank Future Earnings Per Share Growth

Danske Bank Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Danske Bank's strong financial performance in 2024, with a net profit of DKK 23.6 billion and a return on equity of 13.4%, indicates potential for continued stable earnings, challenging the belief in a share price decrease.
  • The bank's strategy execution, including technology advancements like cloud migration and investments in Gen AI, could enhance operational efficiency and support revenue growth.
  • Robust fee income from investment activities and a strong capital markets franchise, with record performance fees in asset management, point to sustained revenue strength.
  • Continued loan demand from corporates and improved credit quality leading to net reversals in loan impairments suggest resilient loan performance and stable net margins.
  • A new share buyback program and maintaining a strong capital position with a CET1 ratio of 17.8% can support share value and investor returns through enhanced earnings per share.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of DKK247.188 for Danske Bank based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of DKK310.0, and the most bearish reporting a price target of just DKK145.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be DKK57.4 billion, earnings will come to DKK21.6 billion, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 6.0%.
  • Given the current share price of DKK233.6, the analyst price target of DKK247.19 is 5.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Read more narratives

Analyst Price Target Fair Value
DKK 247.2
3.4% undervalued intrinsic discount
Future estimation in
PastFuture-2b57b2014201720202023202520262028Revenue DKK 57.4bEarnings DKK 21.6b
% p.a.
Decrease
Increase
Current revenue growth rate
0.15%
Banks revenue growth rate
0.25%