On Tuesday, BofA Securities adjusted its stance on DNB ASA (OTC:DNBBY) (DNB:NO) (OTC: DNHBY) shares, a leading financial services group in Norway. The firm's analyst has reduced the price target to NOK206.00 from the previous NOK213.00. Despite this change, the analyst has decided to maintain an Underperform rating on the stock.
The rationale behind the adjustment stems from a comparison with Norway's Nordic neighbors. The analyst indicates that the relative appeal of Norway, as compared to other Nordic countries, has diminished.
This assessment takes into account the expectation that policy rates will remain elevated for an extended period and that net interest income (NII) challenges will emerge later than anticipated.
Another factor influencing the price target is the high inflation rate in Norway, which is expected to keep costs high for the company. Furthermore, DNB's net interest income is particularly vulnerable to interest rate reductions due to the absence of hedging strategies. As a market leader, DNB may face pressure to transfer more of the benefits from interest rate reductions to its clients.
Despite these concerns, the total yield for DNB, including shareholder buybacks (SBB), stands at 11%, aligning with the average for the sector. However, the analyst believes that DNB's valuation premium over European banks, which is currently at 8.8 times price-to-earnings (P/E) and 1.17 times price-to-tangible book value (P/TBV) for an expected return on tangible equity (ROTE) of 13% in 2025, is unwarranted.
The report by BofA Securities provides a critical view of DNB ASA's future performance and valuation, suggesting that the company may not live up to the premium it commands in the market compared to its European counterparts. The maintenance of the Underperform rating indicates a cautious stance on the company's stock by the analyst at BofA Securities.
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