Translation: Original published in Finnish on 4/11/2025 at 8:40 am EEST.

Mandatum’s investor story relies on two cornerstones: growth in capital-light asset management and the release of balance sheet capital from the with-profit insurance portfolio. Thanks to these factors, Mandatum's profit distribution will continue to be generous going forward, and the stock's expected return is strongly weighted towards dividend yield. However, the share is quite tightly priced at its current level, so we reiterate our Reduce recommendation. We are revising our target price to EUR 5.4 per share (was EUR 4.8) following our increased dividend estimates.

The Group's growth strategy relies on asset management

Mandatum's operations consists mainly of capital-light businesses (asset management and life insurance) and investment activities on its own balance sheet (with-profit business). In life insurance, Mandatum offers savings and investment, compensation and rewards, pension plans and personal risk insurance services to its private and corporate customers. Asset management combines fund business and wealth management services to institutional customers and wealthy individuals.

The cornerstones of the company’s strategy rely on strong growth in the capital-light businesses with a strong focus on asset management solutions and significant release of capital from the with-profit business. The importance of investment operations from its own balance sheet is decreasing year by year as the with-profit business is gradually wound down and the remaining balance sheet investments are divested in the coming years. For the time being, however, most of the Group's earnings come from the returns on with-profit investment activities, for which the company bears the investment risk. In asset management, Mandatum has profiled itself as a high-value-added product house and its core competence is alternative investments and interest rate products.

Group earnings are on a downward trend for years to come

We expect Mandatum's earnings before taxes to have peaked for the time being and to decline moderately in the coming years. In our estimates, asset management earnings will continue to grow strongly, but the decline in the with-profit portfolio will gradually reduce net finance result. With our estimates, growth in asset management will only compensate for the earnings impact of the decline in the with-profit portfolio at the turn of the decade.

Profit distribution continues to be generous, although at a much more moderate level than in the financial year just ended. We estimate that the company will distribute all generated organic capital, which consists of earnings as well as capital released from the with-profit portfolio. We have not yet included the additional capital created by the divestment of PE investments in our dividend estimates, as there is uncertainty regarding the use of the capital received from these. These will ultimately be distributed either as extra dividends or used for acquisitions as part of the consolidation of the Finnish asset management sector.

Valuation is tight

We have gauged the value of Mandatum first and foremost by using the discounted dividend model as it best reflects the company's high payout ratio and the unwinding of its overcapitalized balance sheet. Mandatum's expected return relies, somewhat exceptionally, to a large extent on a high dividend yield (7-8% in the coming years), as earnings will continue to decline structurally for several years to come. The value of the Mandatum share according to our dividend model, which takes into account the result generated by the business and the additional capital on the balance sheet, is around EUR 5.4 (was EUR 4.8). The increase from our previous update is primarily due to revisions in our dividend estimates. Our dividend discount model indicates that the stock is already fully priced, so at the current share price level, the expected return remains insufficient. The sum-of-the-parts calculation also supports our view.