Nordic Legacy Exposure And Rising Regulatory Costs Will Deflate Earnings

Key Takeaways

• Heavy exposure to legacy guarantees and Nordic markets heightens vulnerability to adverse rates, economic shifts, and demographic changes, pressuring long-term profitability and revenue growth.
  
• Rising competition from digital challengers and stricter ESG regulations threaten market share, increase compliance costs, and restrict investment flexibility, squeezing margins across core business lines.
  
• Strong growth in core segments, improved digital offerings, and disciplined capital management position Storebrand for sustained earnings momentum and enhanced shareholder value.

Catalysts

Provides insurance products and services in Norway, Sweden, the United Kingdom, Finland, Denmark, Germany, Luxemburg, and Ireland.

• Storebrand's exposure to guaranteed legacy products leaves it vulnerable to persistent low or volatile interest rates, which could significantly reduce investment income and erode net margins as the company struggles to meet long-term insurance guarantees in an unfavorable yield environment.
  
• Rising longevity and an ageing population may substantially increase Storebrand's long-term pension and retirement-related liabilities, pressuring future claim payouts and threatening solvency ratios, which would weigh on both earnings and balance sheet strength over time.
  
• Storebrand's high operational reliance on the Nordic region makes its topline growth and premium revenues susceptible to regional economic stagnation, negative demographic shifts, or local market disruptions, undermining revenue and profit expansion expectations.
  
• The accelerating disruption from fintech and insurtech challengers could outpace Storebrand's digital transformation, eroding market share and limiting customer growth, leading to stagnating or declining revenues in its core insurance and asset management businesses.
  
• Heightened regulatory scrutiny, especially related to stricter ESG disclosure requirements, is likely to drive up compliance costs and restrict certain investment strategies, shrinking profitability and compressing net margins for Storebrand's fee-based and insurance business lines.

Storebrand Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Storebrand compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Storebrand's revenue will decrease by 46.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 9.8% today to 65.0% in 3 years time.
• The bearish analysts expect earnings to reach NOK 4.7 billion (and earnings per share of NOK 11.62) by about July 2028, up from NOK 4.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.2x on those 2028 earnings, down from 13.7x today. This future PE is lower than the current PE for the GB Insurance industry at 16.1x.
• Analysts expect the number of shares outstanding to decline by 2.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.02%, as per the Simply Wall St company report.

Storebrand Future Earnings Per Share Growth

Risks

• The double-digit growth in both structural drivers and market share, combined with a record operating result and a return on equity of 18 percent, indicates accelerating earnings momentum that can support long-term growth in net income and drive the share price higher.
  
• Storebrand's robust solvency ratio of 200 percent, coupled with plans for significant annual share buybacks and increased dividends until 2030, is likely to deliver shareholder value and support capital returns, benefiting earnings per share.
  
• Continued expansion in the insurance and asset management segments, with asset management assets under management reaching a new record of over NOK 1.5 trillion and strong performance fee income, suggests growing recurring revenues and margin improvement in fee-based business.
  
• The successful integration of digital channels and new applications, such as the Kron app for pension solutions, is supporting retail client growth and improving cross-sell opportunities, increasing both customer base and revenue potential over time.
  
• Sustained improvement in insurance profitability, reflected in a steadily declining combined ratio (now at 91 percent with a target of 90 to 92 percent) and increasing retention despite price hikes, indicates effective risk management and pricing power that support ongoing margin expansion and long-term earnings growth.

Valuation

• The assumed bearish price target for Storebrand is NOK99.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Storebrand's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK165.0, and the most bearish reporting a price target of just NOK99.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be NOK7.2 billion, earnings will come to NOK4.7 billion, and it would be trading on a PE ratio of 10.2x, assuming you use a discount rate of 7.0%.
• Given the current share price of NOK147.3, the bearish analyst price target of NOK99.0 is 48.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.