Mandatum: Dividend paid, but valuation still tight

Translation: Original published in Finnish on 5/19/2025 at 8:30 am EEST.

We update Mandatum's target price to EUR 4.9 per share (previously EUR 5.6) following the dividend payout. Our views on the company or its future outlook remain unchanged, so we have not made any changes to our earnings forecasts in connection with the update. The share remains quite tightly priced at its current level, so we reiterate our Reduce recommendation. We have detailed Mandatum's business in the recently published extensive report, which is freely available here.

Operational development has been strong

Mandatum's stock market journey has gotten off to an excellent start, with strong growth in assets under management over the past two financial years and a corresponding increase in fee result. Interest rate products have been the spearhead of sales, and the fastest-growing customer segment has been international institutional clients. At the same time, the company has slowly reduced its with-profit insurance portfolio in line with its targets.

The current year also got off to a good start, as new sales of interest rate products continued to perform well, and asset management continued to improve in terms of cost efficiency. Thus far, the company has delivered on its IPO promises to grow asset management, shrink the with-profit business, and distribute generous profits. For the just-ended financial year, Mandatum distributed a dividend of EUR 0.66 per share, practically equivalent to the accumulated organic capital creation of the previous two years.

Still some time to go before earnings growth

We expect Mandatum's group profit before taxes to have peaked for the time being and to decline moderately in the coming years. In our estimates, wealth 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 wealth management will only compensate for the earnings impact of the decline in the with-profit portfolio after the turn of the decade.

Profit distribution continues to be generous in the coming years, although at a much more moderate level than in the previous financial year. We estimate that the company will distribute all accumulated organic capital to its owners, consisting 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.

Expectations on the stock are too ambitious

We have gauged the value of Mandatum first and foremost by using the dividend discount 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 (8-9% in the coming years), as earnings will continue to decline structurally for several years to come. 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, is around EUR 4.9 (was EUR 5.6). The decrease from our previous update is solely explained by the dividend payout (EUR 0.66), as our earnings and profit distribution forecasts remain unchanged. Although the business outlook is good, the share price already includes too optimistic expectations. Thus, our dividend discount model indicates that the stock is already fully priced, so at the current share price level, the expected return remains insufficient.