Sbanken ASA (OB:SBANK), a øre8.83b small-cap, is a bank operating in an industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Many banks and capital markets firms, particularly the large, complex institutions, have been simplifying their business and operating models over the last few years, both for economic reasons and to reduce organizational complexity. Financial services analysts are forecasting for the entire industry, a highly optimistic growth of 39.12% in the upcoming year , and a massive growth of 55.40% over the next couple of years. This rate is larger than the growth rate of the NO stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the banking sector right now. Today, I will analyse the industry outlook, and also determine whether Sbanken is a laggard or leader relative to its financial sector peers.
What’s the catalyst for Sbanken’s sector growth?
There is a growing awareness that banks cannot excel at every activity, and that it may be easier and cheaper to outsource noncore activities. However, the threat of disintermediation in the payments industry is both real and imminent, taking profits away from traditional incumbent financial institutions. Over the past year, the industry saw growth in the teens, beating the NO market growth of 4.08%. Sbanken is neither a lagger nor a leader, and has been growing in-line with its industry peers at around 14.81% in the prior year. However, analysts are not expecting this trend to continue, with future growth expected to be 8.48% compared to the wider banking sector growth hovering in the thirties next year. This growth is a median of profitable companies of 24 Banks companies in NO including Sparebank 1 Nordvest, SpareBank 1 Ringerike Hadeland and SpareBank 1 Østfold Akershus. As a future industry laggard in growth, Sbanken may be a cheaper stock relative to its peers.
Is Sbanken and the sector relatively cheap?
The banking industry is trading at a PE ratio of 8.37x, lower than the rest of the NO stock market PE of 13.66x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 9.93% on equities compared to the market’s 11.05%. On the stock-level, Sbanken is trading at a PE ratio of 12.8x, which is relatively in-line with the average banking stock. In terms of returns, Sbanken generated 11.71% in the past year, which is 1.78% over the banking sector.
If Sbanken has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a banking industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the financial sector. However, before you make a decision on the stock, I suggest you look at Sbanken’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has SBANK’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Sbanken? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.