Friday 7 June 2013

Analysis of Danske Bank

A Danish bank, the biggest one.

Company: Danske Bank

Business: Classical banking with all that is included in that. It is the biggest bank in Denmark.

Active: Denmark and all the Nordic countries. As many of the Nordic banks they are also present in the Baltic countries. They have some interest also in Ireland. Denmark is however generating almost half of their revenue.

P/E: 24.1

This analysis comes from a request made here and there are more to come.

The P/E considering last years earnings (and that was a good earnings year!) are as high as 24. The price to book is looking nice for being a bank with 0.8 which due to that reason actually generates a buy according to Graham. The earnings to sale is only 6% which is sad if one compares to Comdirect but ok if one takes a look at Commerzbank itself. The book to debt is also pretty classical for the banks with it 4%. Danske bank had a huge earnings year in 2008 which since then have made them decrease with over 12% each year for the last five years. Actually the biggest drop came in 2009 and since 2010 they have more or less kept the revenue at status quo. This would indicate that they are living heavily on the interest rate and due to ECB they are therefore currently receiving much lower revenues. I would however expect a 4% growth rate which would then motivate a P/E of around 13 according to Lynch. So here we have an interesting situation. It is a buy according to Grahams first formula but looking at the five year growth it is not and also according to Lynch the stock is traded at a very high P/E ratio today and that is with excellent earnings due to a trimmed organization. At least since the last four years they have not payed out any dividends.

Conclusion: I would not buy this stock today since I consider it to be over valued by the stock market. I do however find it very interesting that Grahams first formula puts it as a buy but when I add in that this was a good earnings year then I decide to discard that. When I looked back at the P/E of Danske Bank they have had crazy values up around 50 so based on that it is today cheap... but I stay firm with that it is a no go for me.

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