Den Jyske Sparekasse

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Den Jyske Sparekasse - ABGSC’s DK small/mid-cap seminar feedback

23 september 2020

Open for M&A amid volume concerns
Business model initiatives have lifted 2022e PTP by 58%
DJS trading at a 21e adj. P/E of 7.5x; 20e P/NAV of 0.39x
Setting the guarantors free with IPO in 2018
Today, the CEO of Den Jyske Sparekasse (DJS), Claus E. Petersen, presented at our virtual Danish small-/mid-cap seminar. DJS is a full-service bank with ~350 employees and 19 branches located between mid-north Jutland and the southern parts of Jutland. In November 2018, DJS went public after 146 years as a guarantor savings bank, setting the guarantors free after them being locked into their guarantor deposits for many years.

Volume concern, credit confidence and initiatives execution
The CEO commented that volume pressure was his greatest concern these days, with lending down 4% q-o-q in Q2’20 driven by support package liquidity while H1’20 private segment growth has been quite good. He sees potential for a lending volume rebound when the support package liquidity is repaid. DJS has 3% exposure to pork farmers and thus has some exposure to African Swine Fever (ASF) coming closer to Denmark while the 8-9% exposure of DJS to milk producers was highlighted as more important to focus on. In total, the CEO was confident with his write-down account at this point, also considering an DKK 60m upfront charge for COVID-19 booked Q1’20 for risks which has not materialized at this point. DJS is among the banks that have done most to improve structural PTP through profitability initiatives; since November 2019, initiatives have lifted 2022e PTP by 58%. The CEO commented that he saw a sector logic pointing to a possibility for lower limits for charging retail deposits (DKK 250,000 limit for DJS) as well as a higher charge. The CEO stated that DJS is a bank open for M&A and he expected that sector consolidation would continue following the merger announced today between Salling Bank and Sparekassen Vendsyssel. DJS has built a solvency buffer of 710bp; which is now above its target.

One of the cheapest banks in Denmark on P/NAV
DJS is one of the cheapest banks in Denmark, judging by its P/NAV 20e of 0.39x while its outlook for 2022e is ~ 7% RONAV. The bank has no voting right limitations and could be an M&A candidate, in our view.

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