Sparebank Vest – Selldown of Equity Capital Certificates

Sparebank Vest – Selldown of Equity Capital Certificates

Sparebanken Vest is a Norwegian Savings Bank located on the west coast of Norway and is the third largest savings bank in Norway. It operates as an independent financial services group (not part of the Sparebank 1 – alliance) and it has a market cap of approximately NOK 6.4 billion and a strong focus on digital transformation.

Sparebanken Vest announced its intention to convert about NOK 2.4 billion of the primary capital to ECCs (equity capital certificates) that will be transferred to a newly established foundation. The offering to private investors included 10% bonus certificates (5% the first year and additional 5% the second year), which in my view made this offering a no-brainer to participate in. The only downturn was that the offering was oversubscribed and participants did not receive full-subscription.

Source: Managment presentation

The savings bank has the most desirable “Price to Book vs Return on Equity”-combination and I believe the management decision to focus on introducing customer dividends, improving liquidity in the trading of the ECCs and to continue their digital transformation from a boring savings bank to a digital financial services provider will cause a multiple expansion and hence increase the market cap. The low P/B compared to peers are unjustified and the gap will most likely narrow over time.

Source: Pareto Equity Research

Expected returns:

Expected total returns from holding the ECCs will consist of:

  • Earnings growth
  • Dividends (current yield of 5%)
  • Multiple expansion (higher PB)
  • Bonus ECCs of 10% for participants in the offering (over 2 years).

Risks:

  • Increased capital regulation
  • Regional risk, e.g. focused on the west coast of Norway

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