Collaboration With Bankdata And Antitrust Settlement Promise Growth, Though Margins And Domestic Focus Could Limit Profits

Key Takeaways

• Strategic opportunities from antitrust settlement may enhance market presence and partnerships, impacting revenue positively.
  
• Strong asset management and focus on medium-sized enterprises aim to boost earnings through targeted growth and improved margin efficiencies.
  
• Heavy reliance on the Danish market and cost pressures from IT investments could impact Jyske Bank's growth and profitability amid expected lower interest rates and muted loan demand.

Catalysts

Provides various financial solutions in Denmark and Germany.

• Jyske Bank has announced strategic opportunities arising from a recent antitrust settlement which could unlock market consolidation and provide new structural opportunities, impacting revenue through enhanced market presence and partnerships.
  
• The bank plans to leverage its strong performance in asset under management (AUM) by attracting net inflows of customers and developing its capital-light business, which is expected to boost fee and commission income.
  
• Jyske Bank expects cost efficiencies from a collaboration with their IT provider, Bankdata, to accommodate more seamless and cost-effective operations, potentially improving net margins.
  
• The expectation of a level playing field in capital allocations from early 2025 onwards is anticipated to benefit Jyske Bank, potentially improving earnings through optimized capital usage.
  
• Strategic focus on growing medium-sized enterprise business and affluent personal banking sectors where Jyske Bank shows competitive strength, aiming to improve earnings through targeted profitable growth opportunities.

Jyske Bank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jyske Bank's revenue will decrease by -4.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 37.9% today to 35.5% in 3 years time.
• Analysts expect earnings to reach DKK 4.6 billion (and earnings per share of DKK 84.43) by about December 2027, down from DKK 5.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.0x on those 2027 earnings, up from 5.6x today. This future PE is lower than the current PE for the GB Banks industry at 13.0x.
• Analysts expect the number of shares outstanding to decline by 3.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.67%, as per the Simply Wall St company report.

Jyske Bank Future Earnings Per Share Growth

Risks

• The bank has seen muted demand for loans in the quarter, especially from large corporates and public entities with low margins, which could impact revenue growth.
  
• There is downward pressure on the Net Interest Income (NII) due to lower market and central bank rates, which may affect the bank's earnings.
  
• The investment in new IT systems and processes, while meant to bring efficiencies, represents a cost increase that could pressure net margins if not effectively managed.
  
• The strategy relies heavily on the Danish market, which could pose concentration risks and potentially stagnant growth if the domestic market faces economic challenges, thereby impacting revenue and overall profitability.
  
• The expected decrease in interest rates by 2028, coupled with potentially higher loan loss charges as anticipated in the bank's strategy, could reduce net margins and earnings.

Valuation

• The analysts have a consensus price target of DKK 576.33 for Jyske Bank based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be DKK 13.0 billion, earnings will come to DKK 4.6 billion, and it would be trading on a PE ratio of 8.0x, assuming you use a discount rate of 5.7%.
  
• Given the current share price of DKK 511.5, the analyst's price target of DKK 576.33 is 11.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.