On Tuesday, BofA Securities updated its outlook on Dankse Bank A/S (DANSK:DC) (OTC: DNSKF) shares, increasing the price target to DKK261 from DKK220. The firm has reiterated its Buy rating on the stock of the Denmark-based bank.
The revised price target reflects a positive evaluation of Dankse Bank's financial prospects. BofA Securities highlighted several factors contributing to the bank's strong outlook, including an anticipated total yield of 30% for fiscal years 2024 to 2025, which could potentially increase to 35% if the capital buffer is reduced from fiscal year 2025. This figure is reported to be the highest yield among European banks.
Additionally, BofA Securities expects Dankse Bank to have the most sustainable net interest income (NII) in the region, with a compound annual growth rate (CAGR) of more than 2% from 2023 to 2025. This growth is expected to be supported by the bank's hedging portfolio.
The bank is also forecasted to have positive operating jaws, a metric that compares the rate of revenue growth to the rate of cost growth, in each year from 2024 to 2026. Cost reductions are anticipated due to lower anti-money laundering (AML) expenses. Furthermore, the bank's financial models are prepared to cover five times the normalized cost of risk.
Lastly, the firm notes Denmark's competitive edge over other Nordic countries, with a quicker recovery in volumes expected. Despite Dankse Bank's strong fundamentals and positive forecasts, the bank currently trades at a price-to-earnings (P/E) ratio of 7.7 and a price-to-tangible book value (P/TBV) of 1.0 for a 12.5% return on tangible equity (ROTE), which suggests a discount compared to its Nordic peers. BofA Securities believes this discount is unwarranted based on the bank's projected performance.
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