SEB Posts Good Q1; We Raise Our FVE on Higher Income and Lower Cost Assumptions

SEB reported a good first quarter of 2021 with net profits up 17% versus the fourth quarter of 2020. Total operating income increased 2%, supported by higher net financial income more than offsetting lower net interest income. The decline in net interest income of SEK 262 million on a sequential basis was of a more technical nature as the quarter had fewer days to accrue interest. More important, the higher deposit inflow that SEB has been experiencing for some quarters has now lowered funding costs for the group, affecting net interest income positively. Flat net fee and commission income was a good performance considering the income drag from low card spending. As COVID-19 restrictions are lifted throughout this year and card spending comes back into the mix, we except a higher contribution from this line. Operating expenses declined 2% to SEK 5.7 billion primarily as other expenses came down materially. The bank is on track to meet its SEK 22.9 billion cost target in 2021. Provisions for credit losses declined to SEK 156 million versus SEK 835 million a quarter ago, further supporting the strong performance this quarter. We increase our fair value estimate to SEK 110 per share from SEK 93 after incorporating higher net fee and commission income assumptions as well as a better cost-saving performance.