On Friday, the price target for Svenska Handelsbanken AB (SHBA:SS) (OTC: SVNLY) was lowered by CFRA to SEK105.00 from a previous SEK125.00, while the firm maintained a Hold rating on the stock. The adjustment reflects a price-to-book (P/B) ratio of 1.1x, aligning with the bank's three-year average P/B. This revision comes after Svenska Handelsbanken reported a first-quarter net profit for 2024 of SEK6.6 billion, a 3% year-over-year decrease.
The bank's slight profit decline was primarily due to a significant rise in expenses, which increased by 12%, overshadowing the 1% growth in net interest income spurred by recent interest rate hikes. Following the announcement of these financial results, the bank's shares experienced a downward pressure, dropping by as much as 12%. The market's reaction is attributed to concerns over the disproportion between the growth in expenses and income.
CFRA's analysis suggests that the increased costs are a result of the bank's investment in enhancing its offerings, which they view as an overreaction by the market. Despite this, CFRA remains cautious about the bank's stock, citing a challenging economic outlook for both Sweden and the U.K., particularly within the real estate sector—a market where Svenska Handelsbanken has substantial exposure.
The bank's performance and the subsequent adjustment of its price target reflect a balance between the benefits of higher interest rates and the headwinds from broader economic challenges. CFRA has left its earnings per share (EPS) forecast for Svenska Handelsbanken unchanged. As the bank navigates through the current economic landscape, the firm's stance remains guarded, with a continued Hold rating on the stock.
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