Svenska Handelsbanken AB :SVNLY-US: Earnings Analysis: Q1, 2017 By the Numbers : June 6, 2017

Svenska Handelsbanken AB reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Svenska Handelsbanken AB – Banco Bradesco S.A. Sponsored ADR Pfd and Itau Unibanco Holding S.A. Sponsored ADR Pfd (BBD-US and ITUB-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 1,188.01 million, Net Earnings of USD 462.41 million.
  • Net interest income margins widened from 63.99% to 67.06% compared to the same period last year.
  • Year-on-year change in operating cash flow of -38.06% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline largely a result of non-operational activity, pretax margins improved from 46.73% to 50.88%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 1188.01 1171.25 1273.32 1238.92 1262.13
Revenue Growth (%YOY) -5.87 -11.71 9.57 -2.11 4.31
Earnings (mil) 462.41 377.98 533.26 505.67 479.6
Earnings Growth (%YOY) -3.58 -27.53 22.18 2.4 3.63
Net Margin (%) 38.92 32.27 41.88 40.82 38
EPS 0.12 0.1 0.14 0.13 0.12
Return on Equity (%) 12.43 9.86 13.79 13.29 12.64
Return on Assets (%) 0.6 0.48 0.61 0.57 0.59

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Market Share Versus Profits

Revenues History
Earnings History

SVNLY-US‘s change in revenue this period compared to the same period last year of -5.87% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SVNLY-US is holding onto its market share. Also, for comparison purposes, revenues changed by 1.43% and earnings by 22.34% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline has not come as a result of decline in net interest income margins or because of any loan loss provisions. Both net interest income margins and net interest income after provisions margins have actually improved. In fact, net interest income margins went from 63.99% to 67.06% and net interest income after provisions margins improved from 62.23% to 65.21% over this period. In addition, loan loss provisions as a percentage of net interest income were 2.77% this period , and 2.75% a year ago.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

SVNLY-US‘s change in operating cash flow of -38.06% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Non-operational activities are the primary cause of the company’s fall in earnings. As a matter of fact, both operating margins and pretax margins increased. Operating margins went from 46.67% to 50.83% and pretax margins improved from 46.73% to 50.88%>

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

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Company Profile

Svenska Handelsbanken AB engages in the provision of financial and banking services. It operates through the following segments: Sweden, the United Kingdom, Denmark, Finland, Norway, and the Netherlands. Its products include traditional personal and corporate banking, financing, mortgage loans, investment banking, private banking, cash management, asset management, trading, investments, and life insurance. The company was founded in 1871 and is headquartered in Stockholm, Sweden.

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