TBR: Handelsbanken

To Be Researched: Handelsbanken

Business Description

SHB2“Handelsbanken is a full-service bank for both private and corporate customers. The Bank has a nationwide branch network in Sweden, the UK, Denmark, Finland, Norway and the Netherlands. The Bank regards these countries as its home markets. Handelsbanken was founded in 1871 and has operations in 24 countries.” (Source: Annual Report, 2013)

Earning Power and Valuation: Quick & Dirty

Diluted earnings per share has grown from 14.55 SEK per share in fiscal year 2004 to 22.26 SEK per share in fiscal year 2013, a compounded annual growth rate (CAGR) of 4,8%. See table below for historical diluted earnings per share data.

Fiscal Year 2004 2005 2006 2007 2008
EPS, diluted 14.55 16.98 20.81 24.84 19.31
 Fiscal Year 2009 2010 2011 2012 2013
EPS, diluted 15.98 17.44 19.39 21.85 22.26

Trailing twelve months (TTM) (per Q2, 2014) diluted earnings per share was 23.5 SEK. See table below for a comparison of earnings per share averages for different time periods.

Handelsbanken’s earnings yield calculated from the different averages of diluted earnings per share, ranges from 6.2-7.5%.

Intrinsic business value per share at an earnings multiplier of 15 times, calculated based on the different averages of earnings, ranges from 290-353 SEK.

TTM FY 2013 3y Avg. 5y Avg. 7y Avg. 10y Avg.
EPS, diluted 23.5 22.5 21.2 19.4 20.2 19.3
Earnings Yield 7.5% 7.2% 6.7% 6.2% 6.4% 6.2%
Intrinsic Value, 15x 352.5 337.8 317.5 290.8 302.3 289.5
Margin of Safety 11.0% 7.1% 1.2% -7.9% -3.8% -8.4%

Total dividend per share in 2013 was 16.50 SEK, consisting of 11.5 SEK in ordinary dividend and 5.0 SEK as an extra dividend. Dividend yield (calculated based on ordinary dividend) per today is 3.7%.

Average growth in equity including dividends during 2008-2013 was 15%. See image below (Source: Annul Report, 2013).

Info2From the different calculations we get a value range, with a low of 184 SEK from book value per share, and a high of 353 SEK from TTM diluted earnings per share multiplied by 15.

Assuming an earning power per share of 21 SEK and an earnings multiple of 15 times, gives an intrinsic business value per share of 315 SEK, in line with the current market price.

Key Metrics FY 2013 TTM
Earnings per Share, diluted 22.26 23.5
Dividend per Share 11.5 N/A
Extra Dividend per Share 5.0 N/A
Book Value per Share 175.2 183.9
Return on Equity 12.8% 14.4%
Price per B-share, August 28 313.8
Earnings Yield 7.5%
Earnings Multiplier 13.4
Dividend Yield (Ord.) 3.7%
Earning Power 21
Value per Share, 15x 315
Margin of Safety 0.4%
Value Range 184-353
Margin of Safety 11,1%

Financial data from Annual Report, 2013.

Handelsbanken will be added to the watch list.

Also, further research will be performed about the business and the industry in which it operates.

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company or individual mentioned in this article. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. This article is informational and is in my own personal opinion. Always do your own due diligence and contact a financial professional before executing any trades or investments.

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