SPKSJF.CPH - Sparekassen Sjælland-Fyn A/S

[John Hjorth]

 

Unfortunately, this topics documents will not be available in English. If you don't master one of the languages of the Nordic countries, this will be a really hazzle for you. My advice here - if - you are interested - would be to grab the English version of the financials in English language for a Danish bank like Ringkøbing Landbobank A/S, to get the translations of each post in the financials, by "reading across". Danish bank reporting is totally standardized.

 

- - - o 0 o - - -

 

Name: "Sparekassen Sjælland-Fyn A/S" translates to - about - "Mutual Savings and Loans Sealand-Funen"

 

- - - o 0 o - - -

 

Variant perception:

 

Just like the C case discussed in the C topic in June 2017: Accounting treatment of DTAs. Accounting spin, not to call it something worse.

 

This bank got hit so hard in 2013 by the Danish regulators with provisions on its loan book. At the same time it aquired another Danish bank - at a steal price - called Sparekassen Faaborg A/S, which was in deep trouble because of its real estate loan book. The bank has basically spent the years 2014 og 2015 to clean up the real estate mess in its loan book - lots of neck shots here, there and everywehere, as a result.

 

Nobody cared about what was going on with the bank back in 2013, because it  was basically then a foundation doing business in banking, not in any way threatened on its existence by the losses, so no shareholder fuzz about the losses.

 

Total DTAs at year end 2016:

 

On the balance sheet as an asset:  tDKK 161,769

Off the balance sheet as a contingent asset: tDKK 145,869

Total DTAs: tDKK 307,638.

 

To clean up the accounting spin - to look at this thing through a clear lens - in my opinion - you have to back out all the accounting spin about DTAs - like I did with C in June 2017, plus perhaps some more adjustments. Here, I only include one more.

 

Profit before tax 2017H1: tDKK 150,380

- Gain on own securities portfolio: tDKK 30.576 [<- this is a far stretch, very conservative]

- Interest on core hybrid capital: tDKK 27,939

 

= Adjusted profit [after tax] to the shareholders: tDKK 91,865.

 

 

BV year end 2016: tDKK 2,058,073

- DTAs booked as an asset: tDKK 161,769

 

= Adjusted BV year end 2016: tDKK 1,896,304

 

Estimate of ROE for 2017H1: [2 * 91,865]/ 1,896,304 = 9.7%.

 

BV/share as of 30th June 2017: DKK 164.80

Adjusted BV/share: DKK 164.80 * [1,896,304 / 2,058,073] = DKK 151.84

 

Market price/share at closing Friday this week: DKK 128.50

 

Estimated P/E, based on 2017H1 performance : [1 / 0.097] * [128.50 / 151.84] = 8.72.

 

This is a conservative and yet steadily growing bank, that will most likely not pay Danish Corporation income taxes for about 7 years. Danish corporation tax rate is 22%.

 

Inefficient rationale:

 

Dull bank.

Dull stock.

IPO'ed in December 2015. Nobody cared.

Unknown stock for the crowd.

 

This also means low liquidity in the stock. Daily trading volume is about DKK 1 M within the last three months.

 

Some data:

 

My broker is running a closed board for its customers - www.shareville.se .

 

Total number of active customers at end of 2017H1 at the broker: 616,100

Total number of accounts at the end of 2017H1 at the broker: 801,400

Total number of customers registered at Shareville today: 156,835

Total number of accounts at Shareville containing SPKSJF.CPH today: 70.

[alwaysinvert]

How come they are opening multiple new offices? Most Danish community banks have been closing local offices pretty aggressively since the financial crisis and rather merging themselves towards a better geographical coverage. Doesn't seem like these are offices serving high population density areas (Helsinge, Greve).

 

[alwaysinvert]

Found this explanation of the strategy: https://www.tv2fyn.dk/artikel/sparekassen-sjaelland-fyn-brager-frem

 

Could make sense, I guess. The thesis I have found to work with the Danish banks is profitable ones with low writedowns that have efficiency ratios of ~60% but are working towards lowering it either through mergers or through cutting in the workforce.

 

From the prospectus:

 

Stemmeret udøves således: Hvert nominelt aktiebeløb på DKK 10 giver 1 stemme. Dog kan

der for Aktier tilhørende samme Aktionær maksimalt afgives stemmer svarende til 7,5 %

af den samlede aktiekapital.

 

I haven't seen this particular voting limitation before, and it is more lenient than usual, but it still makes activism  less likely.

[John Hjorth]

I'm sorry for a late reply here, alwaysinvert,

 

Yes, it is like this bank is swimming against the torrent - appearantly with success. It is banking the old fashion way, that generates this success. The bank gets a face with a smile, a person dedicated to the customer and the customers financial situation. It will never stop selling, especially in the oldest part of the population.

 

It's doing banking the Svenska Handelsbanken way, basically.

 

I think the major banks here has made a serious mistake with their strategy, with all this debrancing going on. Especially Danske Bank A/S and Nordea has been the frontrunners in this game, but also the larger regional banks. Especially Nordea has been in the doghouse on this matter lately.

 

These debranching banks have, to me, totally underestimated the consequenses for the business volume of this quite relentless costcutting by debranching. The banks cut some costs, but at the expense of each individual customer getting "left alone", with up to 25 - 30 kms to nearest branch, involving transportation costs and transportation time to get there.

 

Please see attached.

 

- - - o 0 o - - -

 

Nitpickers note: Svenska Handelsbanken hasen't closed a branch in central Odense, but has moved the branch to bigger premises downtown Odense, because of growth, still only one branch here.

[John Hjorth]

SPKSJF 2017 Annual Report out on February 8, 2018.

 

A record year, in short.

 

Loan book up 12 percent. Deposits up 9 percent.

 

P/E at year end: 7.39 [as reported, ~without any tinkering with the DTAs.]

P/B at year end: 0.70 [as reported, ~without any tinkering with the DTAs.]

 

Gross DTAs at year end 2017 DKK 316 M, written down with DKK 146 M to DKK 170 M, equity year end 2017 DKK 2.812 M.

 

There is a capital increase in the mould, to bolster the bank for further growth and to get rid of loans due this year, that counts as part of the banks regulatory capital.

[Spekulatius]

SPKSJF 2017 Annual Report out on February 8, 2018.

 

A record year, in short.

 

Loan book up 12 percent. Deposits up 9 percent.

 

P/E at year end: 7.39 [as reported, ~without any tinkering with the DTAs.]

P/B at year end: 0.70 [as reported, ~without any tinkering with the DTAs.]

 

Gross DTAs at year end 2017 DKK 316 M, written down with DKK 146 M to DKK 170 M, equity year end 2017 DKK 2.812 M.

 

There is a capital increase in the mould, to bolster the bank for further growth and to get rid of loans due this year, that counts as part of the banks regulatory capital.

 

At a 0.7x P/B, any capital raise will be very dilutive. I am guessing that shareholder returns are not very high on their agenda. Their capital ratios look solid, but about 20% of their equity is hybrid capital, which I think is going to get unfavorable treatment under Basel 3 and hence is phased out by most banks.

[John Hjorth]

The capital raise is supposed to take place at a price well below market price as of now per share, thereby giving each and every shareholder the oportunity to buy more, or sell the subscription rights in the market.

 

Not exactly what I've personally experienced in Spain with SAN.

 

I'll elaborate when the specifics are available.

[John Hjorth]

SPKSJF.CPH prospectus is out days ago. [unfortunately only in Danish.] Subscription rights have been trading around DKK 1 the last few days.

 

From my observations about what's been going on in the market on day by day basis, it seems like Sydbank A/S is hoarding them.

[Spekulatius]

So they are doing a 3:1 capital raise via subscription rights for 105 DKK/ share. Just based on the numbers, they probably could do without a capital raise. I suspect that this outfit is more t really run for the benefit of shareholders.

Sparkassen in Germany are banks owned by city, county or states and operate to support the local economy and provide affordable banking services , not to maximize profits. This is similar to credit unions in the US. This outfit, even though it’s trades as a shareholder company, feels a bit the same way.

 

Subscription rights are in most cases impossible to excercisd when held in a foreign account. If you are lucky, your brokerage can sell them, but they often can’t or dont, so you will get screwed.

[John Hjorth]

No.