Saturday 22 October 2016

Searching for safe bank shares? Check Finland

Share watch with John Lynch

John Lynch

Published 17/10/2016 | 02:30

Tourists in Senate Square in the Finnish capital Helsinki
Tourists in Senate Square in the Finnish capital Helsinki

Stephen Spielberg's terrifying movie 'Jaws' posed the burning question of the day: Is it safe to go back in the water? With the great white shark in the shallows, it was probably wise to stay dry.

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The investment equivalent of that burning question is: Is it safe to go back into bank shares? What happened to shareholders in Irish banks in the crash seven years ago is now deeply etched in folk memory. Many people would not approach bank shares with a five-metre barge poll.

And even that is too close for others whose personal wealth was obliterated in the banks' collapse and the way it totally destroyed investor confidence.

However, life goes on and there are other parts of the global investment scene where sticking some spare cash into a financial service company does not inspire the same feelings of horror.

Finland is an example and the company I have been throwing my eye over is Sampo plc, based in Helsinki and valued at €23bn.

Covering the Nordic region, Sampo has two fully owned insurance subsidiaries, P&C Insurance and Mandatum Life. The group is also the biggest shareholder in Nordea Bank, the region's largest. It provides insurance in all the Nordic states, Denmark, Norway, Finland and Sweden and has expanded into the Baltic states of Latvia, Estonia and Lithuania.

Like many insurers in this part of the world, it started out as a mutual insurance company in Turku 107 years ago. Since then, Sampo has evolved through many stages to become a Nordic financial powerhouse.

At the beginning of the millennium, the company merged its banking operations with the state bank of Finland.

Seven years later, the merged concern was sold to Danske Bank for €4bn; at the time the largest takeover in Finnish history.

Shortly after, Sampo invested in Nordia Bank and over time has increased its shareholding to over 20pc.

P&C Insurance is the leading property and casualty insurer in the Nordic and Baltic regions with over 3.7 million customers.

It also owns 30pc of Topdanmark, the second largest Danish insurer.

The company offers a broad range of insurance, from motor to livestock to private, corporate and industrial customers. With three million customers, its private business is the regions market leader and accounts for 60pc of all P&C premiums.

P&C also has thriving commercial and industrial insurance businesses with commercial premiums being double that of industrial.

Its profit before tax last year was €970m, up 3pc on the previous year, the best ever results.

The group's Life insurance business is handled by Mandatum Life. Its main market is Finland but in recent times it has expanded into Baltic countries.

Mandatum is the leading provider for life, health and disability insurance and also provides a wealth management service.

It has 250,000 private customers and 25,000 corporate customers, mainly in Finland. Last year, Mandatum Life contributed €180m pre-tax profits to the group. An associate company of the Sampo group is Nordea Bank, the largest in the Nordic region. In terms of size, the bank is also one of the largest in Europe, with 11 million customers; AIB, Ireland's largest bank, has 2.3 million. Nordia contributed €750m to Sampo group profits last year.

The Sampo group is valued at €23bn. Profits before taxes last year were €1.9bn, an increase of 7pc helped by double-digit growth at Nordia bank and Mandatum Life. The share price over the last five years has more than doubled, rising from €20 in 2011 to €50 last year; today it trades at €40. The group has a policy of paying 50pc of group net profits in dividends. Music to my ears.

I like Sampo's broad geographical coverage, good profitability and the solid base it offers for meeting future demands. In addition, it has an attractive dividend yield. Importantly for Irish investors, the Finnish group carries no exchange risk.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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