On Friday, Goldman Sachs initiated coverage on DNB ASA (OTC:DNBBY) (DNB:NO) (OTC: DNHBY) stock, Norway's largest financial services group, conferring a Buy rating on the company's shares. The investment firm also set a price target of NOK265.00 for the stock, signaling confidence in the bank's performance prospects.
The new assessment is grounded on expectations that DNB will outperform market predictions for net interest income (NII) by 2% over the years 2025-26E. Goldman Sachs' projections are based on their detailed NII estimates, which suggest a robust earnings per share (EPS) and dividend per share (DPS) growth potential, even with the possibility of interest rate reductions.
Norway's interest rates have consistently been higher than those in the Eurozone, and Goldman Sachs' economists anticipate this trend to persist. The firm also notes that there could be additional upside to the consensus NII if the onset of rate cuts is delayed, bolstered by hawkish guidance from the last monetary policy meeting.
The analysis points out that despite Norway's potential rate cuts and DNB's sensitivity to interest rate fluctuations, there are several compensating factors. These include the high proportion of savings accounts with a current remuneration rate of 2.75%, which provides leeway for pass-through if rates decline.
Moreover, the bank's lending margins are expected to recover swiftly due to the short-term structure of its loans, alongside an anticipated rebound in loan growth.
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