Decent Q4 for Danske; Fair Value Estimate Maintained

Narrow-moat Danske reported fourth-quarter profits before tax of DKK 4,880 million versus DKK 2,622 million a quarter ago if we exclude provisions for the Estonia case (DKK 14 billion) and goodwill impairments (DKK 1.6 billion) booked in third-quarter 2022. Net interest income grew 18% on a sequential basis benefiting from higher deposit margins, which are being pushed up by higher interest rates. Positively, net fee income increased 2% after a softer performance through 2022 overall, as capital markets saw a small rebound in activity levels in the fourth quarter. Expenses increased 2% as higher compensation and performance pay drove up the cost base. Loan losses increased to DKK 774 million in the quarter, or 16 basis points, albeit predominantly driven by updated macroeconomic assumptions used in Danske’s risk models and higher management overlays. For 2023, guidance for net profit is set between DKK 15 billion and DKK 17 billion, anticipating higher loan losses of 18 basis points versus just 8 basis points in 2022, highlighting greater uncertainty and a weaker economic outlook for this year. We maintain our DKK 170 per-share fair value estimate.