Aktia Q4'24: Decline in interest income weighs on earnings

Translation: Original published in Finnish on 2/12/2025 at 8:30 pm EET.

Aktia announced Q4 results that were better than we expected. Reported results were negatively impacted by the write-down of IT systems, but adjusted for this, operating performance was quite strong. The 2024 earnings guidance points to an expected decline in comparable operating income driven by interest income, so our forecast revisions remain very moderate. We consider Aktia’s valuation attractive and see the dividend yield combined with the upside in valuation multiples providing investors with a good expected return. We therefore reiterate our target price of EUR 10.5 and Accumulate recommendation.

Strong development in banking, sluggishness in asset management

Aktia's Q4 income was above our expectations as both net interest income and commission income exceeded our forecasts. However, operating expenses were somewhat higher than expected. This was explained by one-off items, and adjusted for them, the performance was solid. However, the reported result was burdened by a 25 MEUR write-down on intangible assets. In addition, the sharp AUM decline in the asset management business was a clear disappointment. The guidance for the current year did not come as a surprise but pointed to an expected decline in comparable operating income (124.5 MEUR in 2024).

Aktia proposed a dividend of EUR 0.82 per share for the year ended, which represents a payout ratio of approximately 80%, significantly higher than in previous years. Despite the lower earnings, the dividend was close to our expectations. In addition, Aktia announced that it will publish its expected strategy update on February 27, when we will next review our assumptions on the business outlook. In particular, we are interested in hearing about ways to stimulate asset management sales.

Forecast changes remained moderate

We have made only marginal changes to our forecasts following the Q4 report. Our forecasts for interest income rose slightly, but our forecasts for commission income fell, reflecting the sluggish AUM development. Overall, our forecasts for comparable operating income remained practically unchanged.

In our forecasts, Aktia's interest income will be on a downward trajectory in the coming years, although the recovery in credit demand and the growth of the loan portfolio will mitigate the decline. However, we do not expect a significant drop, as the bank's hedging measures are stabilizing developments. We expect commission income to grow steadily, driven by moderate growth in asset management and a gradual normalization of credit demand. However, moderately rising cost levels and a gradually declining interest income will lead to a downward trend in the coming years. Nevertheless, we expect Aktia's return on equity to remain at a historically good level of around 10-12%. As the decline in interest rates comes to an end, earnings should begin to improve as loan volumes pick up and client AUM grow moderately.

Attractive expected return on the share

We have examined Aktia's valuation through balance sheet multiples, Nordic bank peers and the dividend model. The methods indicate that the value of the share is EUR 9.4-11.9, with a midpoint of EUR 10.8. Overall, we continue to believe that Aktia's valuation is still low and that the upside potential of the multiples and the strong dividend yield (8-9%) offer a good expected return. Earnings growth in turn will be slightly negative in the coming years due to the declining interest income. The current price level could also justify a stronger view, but the company's performance has been historically volatile and there are still question marks over the normal level of earnings (and return on equity). Furthermore, we believe the company has all the preconditions to grow faster in asset management, but performance there has been subdued. We feel these factors take away the best sharpness from the stock's upside.