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On Monday, Barclays (LON:BARC) upgraded Danske Bank (CSE:DANSKE) A/S stock from ’Underweight’ to ’Overweight’, significantly raising the price target from DKK182.00 to DKK289.00. The adjustment reflects a positive outlook based on several key financial indicators and expectations.
Paulina Sokolova, an analyst at Barclays, highlighted the rationale behind the upgrade, pointing to forecasts of net interest income (NII) that exceed the consensus for fiscal years 2025 to 2027. The bank’s NII is anticipated to hit its lowest point in the second quarter of 2025 and then begin to rise, primarily due to the benefits of a structural hedge and expected volume growth.
Additionally, Sokolova noted that Barclays’ fee estimates for Danske Bank stand 4-5% higher than the consensus for fiscal years 2026 and 2027. Another contributing factor is the projected capital return yield of 24.4% for fiscal years 2025 and 2026, which surpasses the European bank average of 18.1%. This expectation is supported by the bank’s excess capital, which is estimated at 1.6% and is the highest among Nordic banks.
The analyst also mentioned potential excess capital related to the Danish commercial real estate buffer and the Pillar 2 buffer, which is associated with the Estonia case. Barclays believes that Danske Bank is on track to achieve its return on equity (RoE) target of 13% in fiscal year 2026, which is more optimistic than the consensus forecast of 12%.
Barclays’ outlook diverges from the consensus for fiscal year 2026 not just due to higher revenue expectations but also due to the assumption that Danske Bank will begin to release some of its prudent margin adjustments (PMAs). Furthermore, an expected total payout ratio, including buybacks, is set at 120% as the three-year probation period related to the Estonia case concludes in fiscal year 2025, serving as a potential catalyst for the bank’s shares.
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