Annual Report: Handelsbanken, 2014

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.

Annual Review: Handelsbanken in 2014

In this post I take a quick look at Handelsbanken’s performance during 2014 from a few key metrics and also update my intrinsic business value range. A more in-depth analysis will be done in another post.

Key Metrics

  • Total income increased 5.5% (3.6) to SEK 38.3 billion (36.3)
  • Total expenses increased 1.6% (2.2) to SEK 17.3 billion (17.1)
  • Profit before loan losses increased 8.9% to SEK 21.0 billion (19.3)
  • Net loan losses of SEK -1.8 billion (-1.2)
  • Profit for the year from continuing operations increased 6.8% (1.1) to SEK 15.1 billion (14.2)
  • Diluted earnings per share from continuing operations SEK 23.45 (22.07)
  • Book value per share increased 12.9% (7.6) to SEK 194.2 (172.0)
  • Return on average equity (cont. op. after dilution): 12.8% (13.3)
  • Return on average equity (total op. after dilution): 12.9% (13.4)
  • Ordinary dividend increased 8.7% (7.0) SEK 12.50 (11.50)
  • Extra dividend of SEK 5.00 (5.00)
  • Loan loss ratio of 0.10% (0.07)
  • Impaired loans reserve ratio of 47.2% (56.2)
  • Proportion of impaired loans of 0.25% (0.18)
  • Operating profit increased to SEK 19.2 billion (18.1)
  • Common equity tier 1 ratio, CRD IV: 20.4% (18.9%)
  • Total capital ratio, CRD IV: 25.6% (21.6%)
  • C/I ratio: 45.2% (47.0)
  • C/I ratio, incl. loan losses: 49.9% (50.3)
  • Number of branches: 832 (810)
  • Average number of employees: 11,692 (11,503)

Ten-year Overview: EPS, BVPS and ROE

Earnings per share and book value per share increased steadily during the last ten years, at a CAGR of 5% and 7% respectively. Return on equity has declined from a somewhat higher average level of 15.8% in 2005 to 2008, compared to 13.4% during 2010 to 2014.


Also, the graph below shows Handelsbanken’s pretty stable growth at a CAGR of 15%, from Q3 2007 onwards.


Loan losses were SEK -1.2 billion (-1.2). Loan losses as a proportion of lending were 0.10 per cent (0.07). According to Handelsbanken “The corresponding figure for other major Nordic banks was 0.12 per cent (0.15).”


Intrinsic Business Value Range

  • Book value per share: 194.20
  • Earning power: 23.40
  • Earnings multiplier: 12-15x
  • Earnings value: 281-351 SEK

Value range: 194-351 SEK

Price per share, March 5, 2015: 417.20 SEK

Margin of safety: None.

Price-to-book multiple

As of today Handelsbanken is trading at a price to book value of 2.15.

In the table below I have calculated different price-to-book multiples depending on differences in assumed growth rates and cost of equity, with return on equity unchanged at 13.0% (slightly below average five-year return on equity for Handelsbanken).

So, for example, a growth rate of 3.5% going forward and a cost of capital of 8% results in a price-to-book multiple of 2.11. A 9.5% cost of capital and a growth rate of 6.5% results in a multiple of 2.17.


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.


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