Demerger of Sampo and Mandatum draws closer

Mandatum will officially demerge from Sampo on October 2 when trading with Mandatum's share begins. In the commentary below, we discuss the main aspects of the arrangement and its impact on our estimates and Sampo's valuation. We will update our view on Sampo on Monday when the arrangement is finalized. Our extensive report on Sampo published in the summer is still very topical (available here) and thoroughly covers the current arrangement and Mandatum.

The arrangement is good for both parties

In the demerger, Sampo's shareholders will receive Mandatum shares in proportion to their current shareholding. The arrangement is tax-neutral for investors, and we believe it is a smart way to implement the demerger, as neither party needs new capital. The reasons behind the demerger are obvious. Sampo wants to be a pure-play P&C insurer and Mandatum does not fit this picture well. Mandatum clearly ties up more capital than P&C insurance and has a higher volatility of results. After the exit from Mandatum, Sampo will be able to further improve its capital efficiency and lower earnings volatility should support the company's valuation multiples.

As far as Mandatum is concerned, we think the decision is a very good one. Mandatum has interesting growth opportunities in the Finnish asset management field, but, e.g., larger inorganic moves have been impossible under Sampo's management as the Group's strategy focuses on P&C insurance. As an independent company, Mandatum will be able to pursue more rapid growth and the quality of the company will be better reflected as an independent company. You can watch Mandatum's investor event from a couple of weeks ago here.

Mandatum's share of Sampo's earnings is just over 10%

According to our projections, Mandatum's share of Sampo's earnings in 2023-2025 is on average slightly above 10%. Sampo’s earnings estimates will naturally go down by this amount next Monday in connection with the demerger. We note that since the beginning of the year, Mandatum has been reflected in Sampo's results only in EPS, as it has been classified as an available-for-sale operation. Regarding the dividend, Sampo has already previously communicated that EUR 0.30 of the 2022 dividend came from Mandatum and therefore in 2022 Sampo's base dividend without Mandatum would have been EUR 1.50. This is the level that Sampo is going to increase in the future and our dividend forecasts will decrease by EUR 0.30 per year. Sampo's additional dividend forecasts are not affected by the Mandatum exit.

Mandatum's share of Sampo's SOTP approximately 10%

In our extensive report published in the summer, we valued Mandatum at around EUR 2.3 billion. This level is also roughly in line with other analyst estimates we have seen and we expect Mandatum's market value to settle in this ballpark. A price tag of EUR 2.3 billion means around EUR 4.6 per share and the share price should settle between EUR 4-5. We note that Mandatum's trading volumes are likely to be very high in the first few days due to the rotation of ownership (e.g. index funds will have to sell their shares) and this could have a significant impact on the share price. The sum of the parts for Sampo will also decrease by EUR 2.3 billion, assuming that the values of the other parts remain unchanged.