Fee And AI Expansion Will Improve Operational Efficiency

Key Takeaways

• SEB's focus on increasing fees and customer satisfaction, along with AI initiatives, is expected to enhance revenue growth and efficiency.
  
• Geographical diversification and deepened client relationships could boost earnings, while share buybacks reflect confidence and support EPS growth.
  
• Reliance on CIB fee income and market instability could impact revenue amid competitive mortgage margins and rising regulatory burdens.

Catalysts

Provides corporate, retail, investment, and private banking services.

• SEB's focus on increasing fees and commissions in the CIB division and customer satisfaction improvements could boost revenue growth.
  
• The expansion of AI initiatives across the bank is expected to enhance efficiency and productivity, positively impacting net margins over the medium to long term.
  
• SEB's strategy to deepen and broaden relationships with existing clients by engaging them with more products offers potential for increased revenue per client.
  
• The bank's geographical diversification, specifically increased income from countries outside Sweden, may support earnings growth and ROE.
  
• The ongoing share buyback program of SEK 2.5 billion per quarter signals confidence in internal performance and provides a catalyst for EPS growth.

Skandinaviska Enskilda Banken Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Skandinaviska Enskilda Banken's revenue will decrease by 0.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 43.0% today to 40.2% in 3 years time.
• Analysts expect earnings to reach SEK 32.0 billion (and earnings per share of SEK 17.35) by about May 2028, down from SEK 34.2 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as SEK36.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.6x on those 2028 earnings, up from 8.9x today. This future PE is greater than the current PE for the GB Banks industry at 8.7x.
• Analysts expect the number of shares outstanding to decline by 2.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.65%, as per the Simply Wall St company report.

Skandinaviska Enskilda Banken Future Earnings Per Share Growth

Risks

• The company's reliance on fee and commission income from the Corporate & Investment Banking (CIB) division to offset lower net interest income could be risky if client activity stalls due to market uncertainty, potentially impacting future revenue growth.
  
• Market instability, heightened by potential trade wars, has introduced a wait-and-see mode which could affect revenue from investment banking activities, as was indicated by a stalling in activities like M&A and capital raising.
  
• Increased volatility and economic uncertainty could lead to reduced client lending and borrowing demand, pressuring revenue streams and net margins.
  
• A competitive mortgage market with ongoing margin compression suggests future challenges in maintaining or growing net interest income from the retail lending segment, which could affect overall earnings.
  
• The outlook indicates potential rising levies and regulatory burdens, particularly with the uncertainty around temporary Baltic levies and Swedish resolution fees, which could negatively impact expenses and net margins moving forward.

Valuation

• The analysts have a consensus price target of SEK156.6 for Skandinaviska Enskilda Banken 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 SEK180.0, and the most bearish reporting a price target of just SEK129.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK79.6 billion, earnings will come to SEK32.0 billion, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 5.6%.
  
• Given the current share price of SEK152.45, the analyst price target of SEK156.6 is 2.7% 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.