Translation: Original published in Finnish on 06/10/2025 at 08:44 am EEST

We have raised our earnings estimates following Mandatum's CMD, as the profitability outlook for asset management is stronger than before. In addition, our profit distribution forecasts increased clearly. The share remains quite tightly priced at its current level, so we reiterate our Reduce recommendation. We revise our target price to EUR 5.3 (was EUR 4.9) in line with our dividend model.

Cost control offers scalability for profitability

We made estimate upgrades based on the CMD. The greatest need for updates was in our profitability forecasts, as the company provided better visibility into its expected cost development. In the coming years, the decline in IT costs, in particular, should keep operating costs under control, which will continue to lead to clearly scalable profitability in capital-light businesses. Our AUM growth forecasts, on the other hand, are practically unchanged, so the roughly 4-5% increase in our earnings forecasts for the next few years is purely due to the improved profitability outlook.

In our estimates, the company will reach its ROE target (>20%) at the end of the target period, when the balance sheet's excess capitalization has been unwound and the wealth management business with attractive return on capital has grown significantly larger. In addition, we expect Mandatum to barely reach its targeted average earnings growth of 10% in capital-light businesses, but a better level would require faster growth in AUM than we expect. Our previous comments on the key findings of the CMD can be read here.

In our forecasts, Mandatum's earnings have reached their peak for now, but we expect earnings to develop steadily in the coming years.  Wealth management earnings will continue to grow strongly, but the decline in the with-profit portfolio will gradually reduce the net finance result. In our forecasts, growth in wealth management will fully compensate for the earnings impact of the declining interest rate base already by the end of the strategy period, but even after that, declining investment income will somewhat hamper the Group's earnings development.

The profit distribution outlook is clearer than before

Our profit distribution forecasts increased significantly, as we now expect the company to distribute all the capital released from the sale of Saxon Bank shares to its owners next spring, which would make the total profit distribution for 2025 EUR 1.0 per share. Mandatum also lowered its solvency target level, which supports the profit distribution outlook. The dividend flow will remain strong even after next spring as the company steers its solvency towards the new target level (Solvency 2 ratio of 160-180%). Mandatum's profit distribution can be seen as consisting of net profit and the share from the sale of investment assets on the balance sheet. In the coming years, the focus of dividend distribution will be strongly on returning excess capital, with accumulated earnings playing a smaller role. Mandatum’s goal is to distribute a total of over 1 BNEUR in dividends in 2025-2028. The estimate, like the previous target, seems fairly conservative, and we believe that the final profit distribution will be closer to 1.5 BNEUR, which is also required by the ROE target.

Valuation is the only problem

The value of Mandatum's stock according to our dividend model, which considers the earnings generated by the business and the additional capital on the balance sheet, has risen to around EUR 5.3 (was EUR 4.9). Half of the increase is explained by the rise in earnings growth forecasts and the rest by the increased estimate of excess capital accumulation. Although the business outlook is excellent, the current share price already fully prices this in. We see the stock as fully priced and consider the expected return to be inadequate, even though the high dividend yield limits the downside of the stock.