Aktia Q2'25: Gradual decline in earnings is progressing as expected

Translation: Original published in Finnish on 8/6/2025 at 8:30 am EEST.

Aktia published its Q2 report in line with our expectations. Net interest income continued its decline, which, as expected, also pushed the result clearly below the comparison period. Following a rather unsurprising report, the forecast changes remained moderate. We still consider Aktia's valuation to be inexpensive and believe that the dividend yield, combined with the upside potential in valuation multiples, offers investors a sufficient expected return. We reiterate our Accumulate recommendation and our EUR 10.5 target price.

Earnings developed as expected

Aktia's income in Q2 was well in line with our forecast. Although commission income was slightly weaker than anticipated, the life insurance result fully compensated for this. Like its peers, wealth management suffered from high volatility, as assets under management were higher at the end of the quarter than in the previous quarter. New sales performed clearly better than feared (+68 MEUR) as other products compensated for the redemptions seen in investment funds. Comparable expenses developed as expected, but the company recorded 1 MEUR more one-off costs than anticipated. In our interpretation, this is largely related to the change of CEO. Therefore, the reported earnings missed estimates, but the comparable EBIT met expectations. Aktia posted comparable EBIT of 26.2 MEUR for Q2 and earnings per share was EUR 0.29. This still meant a decent 12% return on equity.

The Q2 report did not lead to material changes in our estimates

We have slightly raised our loan portfolio growth estimates for the coming years, as demand has shown signs of picking up. In addition, the risk of a full-scale escalation of the trade war has decreased with the published tariff agreements. Our commission income estimates, however, declined, as there are not yet clear signs of a more sustained pick-up in sales. In addition, changes in the head of the wealth management business and the CEO may, in our view, delay the turnaround's materialization. Overall, our adjusted EBIT estimates decreased by a modest 1-3%. In practice, our assessment of the bank's earnings outlook thus remains unchanged.

In our forecasts, Aktia's interest income will be on a downward trajectory in the coming years, although the recovery in credit demand and the growth of the loan portfolio should mitigate the decline. However, we do not expect a dramatic drop in interest income, as the bank's hedging measures are stabilizing developments. We expect commission income to grow steadily, driven by moderate growth in asset management and a gradual normalization of credit demand. However, due to a moderately increasing cost level and a gradually weakening net interest income, the comparable result is expected to decline in the coming years. Nevertheless, we expect Aktia's return on equity to remain at a historically good level of around 11-12% (target +15 %). Once the decline in interest rates eventually bottoms out, earnings should also start to rise again along with the growth in business volumes.

Moderate valuation keeps the expected return sufficient

We have examined Aktia's valuation through balance sheet multiples, Nordic bank peers and the dividend model. The methods indicate that the value of the share is EUR 10.1-11.8, with a midpoint of around EUR 11. Overall, we continue to believe that Aktia's valuation is still low and that the upside potential of the multiples and the strong dividend yield (8-9%) offer a good expected return. Earnings growth in turn will be slightly negative in the coming years due to the declining interest income. However, a much higher price level than today would require a significant step-up in asset management sales, as performance has been sluggish in recent years and client assets under management have declined. Until clear signs of this, it is difficult to see significant upside potential in the share.