Headwinds before year-end
STOREBRAND Headwinds before year-end We expect Storebrand to report a somewhat soft EPS adj. of NOK1.0 for Q4 (results due 07:30 CET on 13 February). We forecast the Solvency II ratio to fall from 166% at end-Q3 to 163% at the end of 2018, as a result of a 20bp reduction in long-term interest rates, global equity markets being down around 12%, credit spreads widening, as well as a dividend payment. We forecast a total DPS of NOK3.5 for 2018, a 64% payout ratio. Beyond Q4, we still see ample upside potential and reiterate our BUY and NOK95 target price.
Solvency II ratio set to come down due to dividends and financial markets. We expect the Solvency II ratio to come down from 166% at the end of Q3 to 163% at the end of Q4. We see this being driven by a +2%-points contribution from earnings and +1%-point from product and model improvements; we also expect a reduction of 2%points from 20bp lower long-term interest rates, -2%-points from the sell-off in equities (MSCI World in local currencies was down 12% QOQ), and -2%-points from the dividend payment (Storebrand is subtracting a 50% payout in the reported Solvency II numbers through the year, while we forecast a payout ratio of 64% for 2018). In asset management, we expect a very modest contribution from performance fees in Skagen and Delphi, given that most of the larger funds have underperformed through 2018. We forecast a DPS of NOK3.5. We keep our payout ratio estimate at around two thirds, but due to the weak EPS and Solvency II ratio outlook for Q4, we have reduced our DPS estimate for 2018 from NOK4 to NOK3.5. This is likely to be composed of an ordinary dividend of NOK2.8/share, corresponding to a 50% payout ratio, while we believe an extra NOK0.7/share will be added, given the solid Solvency II ratio and what appears to be a constructive dialogue with the Norwegian regulator. BUY and NOK95 target price reiterated. We see significant upside potential to our target price, comprising the value of the DPS from the build-down of the guaranteed book (NOK19/share) and the fast-growing non-guaranteed segment (2018e P/E of 14x). Near-term, we see a potential share price catalyst in the Solvency II ratio beating expectations, as Storebrand continues to generate capital and optimise its solvency through balance-sheet adjustments. We are 20–40% above consensus on our 2018– 2019e DPS, on what appear to be our more optimistic solvency generation assumptions. Storebrand has generated close to twice as much capital as it guided at its 2016 CMD
Solvency II ratio set to come down due to dividends and financial markets. We expect the Solvency II ratio to come down from 166% at the end of Q3 to 163% at the end of Q4. We see this being driven by a +2%-points contribution from earnings and +1%-point from product and model improvements; we also expect a reduction of 2%points from 20bp lower long-term interest rates, -2%-points from the sell-off in equities (MSCI World in local currencies was down 12% QOQ), and -2%-points from the dividend payment (Storebrand is subtracting a 50% payout in the reported Solvency II numbers through the year, while we forecast a payout ratio of 64% for 2018). In asset management, we expect a very modest contribution from performance fees in Skagen and Delphi, given that most of the larger funds have underperformed through 2018. We forecast a DPS of NOK3.5. We keep our payout ratio estimate at around two thirds, but due to the weak EPS and Solvency II ratio outlook for Q4, we have reduced our DPS estimate for 2018 from NOK4 to NOK3.5. This is likely to be composed of an ordinary dividend of NOK2.8/share, corresponding to a 50% payout ratio, while we believe an extra NOK0.7/share will be added, given the solid Solvency II ratio and what appears to be a constructive dialogue with the Norwegian regulator. BUY and NOK95 target price reiterated. We see significant upside potential to our target price, comprising the value of the DPS from the build-down of the guaranteed book (NOK19/share) and the fast-growing non-guaranteed segment (2018e P/E of 14x). Near-term, we see a potential share price catalyst in the Solvency II ratio beating expectations, as Storebrand continues to generate capital and optimise its solvency through balance-sheet adjustments. We are 20–40% above consensus on our 2018– 2019e DPS, on what appear to be our more optimistic solvency generation assumptions. Storebrand has generated close to twice as much capital as it guided at its 2016 CMD