Mandatum Q4 on Tuesday: Investment income will again determine the result

Translation: Original comment published in Finnish on 2/12/2024 at 7:26 am EET

Mandatum will report its Q4 results on Tuesday at 10:30-11:00 am EET. We expect the sales of investment products to continue at a good level in Q4 and positive value changes to have increased AUM. Investment income, however, has an impact on the quarter’s result and again constitute a significant forecasting risk. We expect Q4 PTP to be approximately 61 MEUR. No data for the comparison period is available.

Small forecast changes in investment income

We've made some small revisions to our forecasts ahead of the Q4 report. The changes concerned the with-profit portfolio, the investment income forecasts of which we raised based on the strong capital market development during the quarter. Even small changes in investment income affect Mandatum’s result with a strongish leverage due to the high weight of the segment. Our EPS forecast for 2024 grew by some 5%.

We expect customer assets to have continued developing strongly

Income from investment contracts include fees and expenses for asset management and a majority of unit-linked insurance. However, the majority of unit-linked pension insurance policies are still recorded through the insurance service result, as their conditions differ somewhat from other unit-linked products. These together form Mandatum’s commission result, which we expect to have been around 12 MEUR in Q4.

We expect Mandatum’s AUM to have increased from some 11.2 BNEUR at the end of September to approximately 11.5 BNEUR. Mandatum's guidance is that the net subscription of its capital-light businesses (unit-linked insurance and asset management) accounts for 5% of AUM. After Q3, the figure was already slightly above 5%. Adding the strong capital market development in Q4 to this, the guidance mainly indicates that at least no significant redemptions have been seen. We did not expect them either, so the information value of the guidance is rather limited for Q4. However, AUM growth is key to Mandatum’s value development, as the proceeds from this are the most important source of the Group’s operational business.

The result from investment activities will again impact EBIT

The result of term life insurance consists mainly of the contractual service margin (CSM), which Mandatum recognizes in the balance sheet throughout the contract period. In a somewhat simplified approach, the CSM in the balance sheet can be interpreted as Mandatum’s estimate of future returns (considering the time value of money) from current life insurance contracts. We expect the result of term life insurance to be close on 4 MEUR in Q4. We point out that the sale of the insurance portfolio to If will at some point generate a non-recurring insurance margin income of approximately 10 MEUR, but there is still uncertainty about the timing. We do not expect this to have an impact on Q4, but we would not be surprised if the profit was allocated to the review period.

We expect a result of approximately 50 MEUR (return on investment portfolio at fair value ~2.8%) from investment activities (with-profit portfolio). Even if investment income would be strong as expected in the quarter, the decrease in the discount rate should be negatively reflected in the profit from the with-profit portfolio as the present value of insurance liabilities in the balance sheet increases.

For the Other segment, we expect a negative result of good 5 MEUR, as non-recurring costs from the listing should depress the reported result. As a sum of the above, we expect the Group’s PTP to be around 61 MEUR.

The profit distribution proposal and sales development are of interest

In addition to the result, our interest turns to the dividend proposal for the financial year and future profit distribution outlook. We expect the Board of Directors to propose a dividend of EUR 0.33 per share. The company has previously announced that it targets a cumulative profit distribution of 500 MEUR in 2024-2026, and this target is unlikely to be changed in the Q4 report. Although the company’s balance sheet is very strong and our solvency expectation is well above the company’s target level, the company is unlikely to distribute additional dividends in the short term. In the longer term, we expect Mandatum to return surplus capital accumulated in the balance sheet to its owners unless significant news is heard from the M&A front before that. We believe the company wants to maintain leeway in the balance sheet over the next few years, especially for acquisitions. In addition to profit distribution, our attention is focused on the development of new sales and management comments on the demand outlook for investment products, the tone of which should be generally positive. As in the previous year, we expect the guidance for this year to be fairly broad and to indicate, e.g., positive new sales.