SOGN.OL — mttssn research

HOLD

Conviction: MEDIUM

A small Norwegian savings bank earning a ~8.6% ROE — below the ~9.5% cost of equity — yet trading at 1.25× book versus a Gordon-justified ~0.87×. Expensive on the frame; the equity-certificate structure and high dividend are mitigants. HOLD with a bearish lean.

Return on Equity

8.2%

Cost of equity ~9.5%

Price / Book

1.25×

1.25× book; premium to formula

Fair P/B (Gordon)

0.81×

(ROE−g)/(COE−g); g 3%

Price / Target

NOK 333 → NOK 300

-10% base; HOLD

Price / Earnings

15.1×

≈14.5× earnings

P / TBV

1.25×

Price / tangible book

Economic Profit

+NOK 3M

Negative spread — ROE < COE

Equity (book)

NOK 1.3B

Savings-bank certificate equity

Thesis

Sogn Sparebank is a small Norwegian regional savings bank. It earns a ~8.6% return on equity — below the ~9.5% cost of equity — which on a strict Gordon framework would imply a sub-book valuation, yet the equity certificates trade at 1.25× book.

The discrepancy partly reflects the Norwegian savings-bank structure (equity certificates are not ordinary equity; primary-capital owners differ) and a high dividend yield typical of the format. Still, a sub-cost-of-equity return at a premium-to-book is a stretched valuation.

Valuation · residual income (equity frame) & scenarios

Gordon fair P/B = (8.6%−3%)/(9.5%−3%) ≈ 0.87×, versus the current 1.25× — i.e. the certificates look expensive on the formula. The savings-bank structure and dividend explain part of the premium, but the return does not cover the cost of equity.

Base NOK 300 (−9%, partial de-rate); bull NOK 360 (ROE rises above the cost of equity on rate/credit tailwinds); bear NOK 250 (ROE stays sub-COE and the premium normalises).

Market-implied ROE

11.1%

sustainable ROE the price already demands — vs 8.2% observed

Current → Fair P/B

1.25× → 0.81×

at a sustained 8.2% ROE, K_e 9.5%, g 3%

Excess-return premium

NOK -51 / sh

value above NOK 266.94 book from the -1.2pp ROE−K_e spread

The operating reverse-DCF (NOPAT / invested capital / WACC) does not apply to a balance-sheet business — leverage is the raw material and "net debt" is not meaningful. The equity is valued on residual income: book equity plus the present value of returns above the cost of equity, discounted at K_e; the single-stage lens is the Gordon fair price-to-book, (ROE−g)/(K_e−g). The market prices in a sustainable ROE of 11.1% vs 8.2% currently earned; at a sustained 8.2% ROE the warranted P/B is 0.81× (NOK 216/sh, -35%).

Scenario	24m target	Impl. ROE	Upside	Prob.	Driver
Bull	NOK 360	12%	+8%	30%	ROE rises above COE on rate/credit tailwinds
Base	NOK 300	10%	-10%	40%	Partial de-rate; sub-COE return
Bear	NOK 250	9%	-25%	30%	ROE stays sub-COE; premium normalises
Prob-weighted	NOK 303	—	-9%	100%	Scenario-weighted expected value

Sensitivity — fair value / share at K_e × ROE

K_e \ ROE	10%	14%	18%	22%	26%	30%	34%
8.00%	374	587	801	1014	1228	1441	1655
8.75%	325	511	696	882	1068	1253	1439
9.50% (base)	287	452	616	780	945	1109	1273
10.25%	258	405	552	700	847	994	1141
11.00%	234	367	501	634	767	901	1034

Green = fair value above the current price of NOK 332.95. For a financial the surface is dominated by cost of equity and sustainable ROE — not unit growth.

Method & data. ROE 8.2% and book equity are observed (net income / total equity). Cost of equity 9.5% and terminal g 3% are assumptions, shown explicitly and overridable. The underwriting bridge (combined ratio → float → ROE) is [DATA SAKNAS] — it requires a financial deep-dive to extract the combined ratio and investment yield, and is omitted here rather than estimated.

⤓ Download the full model (.xlsx) — formula-driven sheets; flex the blue input cells and the model cascades in Excel.

Key drivers

1. High dividend

Norwegian savings-bank certificates typically pay a high, well-covered dividend — the main support.

2. Local franchise

An established regional position with sticky retail relationships.

3. Rate tailwind

Higher rates can lift net interest income and ROE toward the cost of equity.

4. Conservative lending

A predominantly secured (mortgage) loan book limits credit losses.

5. Equity-certificate structure

The savings-bank structure supports a structurally higher P/B than ordinary banks.

Key risks

Sub-COE returns~8.6% ROE below the ~9.5% cost of equity — does not create value on a strict frame.
Premium-to-formula valuation1.25× book vs a Gordon-justified ~0.87×.
Small/illiquidA very small, illiquid certificate with limited float.
Rate/credit cycleNII and loan losses are sensitive to the Norwegian rate/credit cycle.
Regional concentrationExposure to one Norwegian region's economy.

Conclusion

Sogn Sparebank earns below its cost of equity yet trades at a premium to the Gordon-justified P/B — expensive on the frame, with the savings-bank structure and dividend as mitigants. HOLD with a bearish lean, medium conviction; base target NOK 300 (−9%).

A rate/credit-driven ROE move above the cost of equity would justify the premium; otherwise the valuation is stretched.