Banking update: Handelsbanken, Lloyds Banking & Gronlandsbanken (sale)
Although I usually don’t care that much about quarterly earnings, let’s start with two interesting ones:
Handelsbanken is on my watch list, I consider them as one of the best bank franchises globally but still a little bit too expensive. Officially, “Mr. Market” was disappointed because earnings were below expectations. The stock dropped around 8% on that day:
Q3 stand alone was indeed weaker than Q3 2014 according to the interim report, for 9M the result is flat.
However the most important aspect for me is that Growth in the UK is still excellent. For the time being, the growth does not reach the bottom line as the showed declines in other segments, but over time this will show. So for me, the case is still intact and I will buy when my limit (110 SEK) is reached.
Lloyd’s released Q3 results as well. As expected, the PPI issue is not over yet. Operationally I found it actually quite encouraging. Both, costs and margins show underlying strength. The stock price in is pretty much where I bought it in April (adjusted for the quarterly dividends). The UK Government in the meantime has dumped another 7 bn shares or so, so the stock “Overhang” has been reduced by 50% since then.
There was positive news from the regulatory side (“Ring fencing”) and overall I think the case is fully intact. The only thing which annoys me is that the use “Return on required capital” as KPI which I think is pretty meaningless for share holders. Nevertheless I am actually thinking of adding to the position below 0,70 GBP.
Gronlandsbanken issued numbers on the same day as Lloyds. The Q3 numbers were unspectacular within their guidance. As some might remember, I was already not so sure in February if I should keep the stock. Danish interest rates have “normalized” somewhat from -1,5% (yes, MINUS) to minus 0,5% for 3 month interbank deposits, but life is still hard for a Bank in Danish currencies if you want money on deposits.
When I bought the stock 3 years ago, these were my reasons back then:
– as it is the only bank in Greenland, its margins are around twice as high as the best global banks and the balance sheet is rock solid. One could call this a natural moat
– even based on the current state, current valuation implies significant upside to fair value
– the Greenland resource story could add significant growth going forward, even with maybe other banks entering Greenland
– finally, Management has started to buy shares after surprisingly good Q3 numbers
– although there is no direct catalyst, an indirect catalyst could be if some of the projects proceed well and Greenland will move into the spotlight. Gronlandsbanken is the easiest (and only) way to invest into Greenland without project specific risk
So far, it is still the only bank in Greenland, but the overall interest rate development clearly has made the “stand alone case” less attractive. More important however for me is the fact that at current commodity prices, the “natural resource option” is very far out of the money. So the problem is:
– in the banking sector, there are more attractive cases, for instance Lloyd’s Banking Group
– if I wanted to play natural resources or oil, there would also be better cases
So as a result, I have full sold my Gronlandsbanken stake at current prices (610 DKK). The total return inkl. dividends and later purchases was around 28% or 9% p.a. Not great but not that bad either.