Nordea Q4'25 preview: The stock rally has set the bar high

We expect stable earnings development from Nordea in Q4. We have raised our earnings estimates for the coming years to account for the improved growth outlook for the loan portfolio ahead of the earnings report. As a result, we also revise our target price to EUR 17.5 (was EUR 15.0), but lower our recommendation to Reduce (was Accumulate) as the stock rally has pushed the required earnings development too high.

Q4 earnings expected to be on par with the comparison period

Nordea will publish its Q4 result on Thursday, January 29. Although net interest income is expected to decrease, we expect returns to turn back to slight growth from the previous quarter, thanks to asset management. We expect credit losses to remain quite moderate, and in addition, we expect unwinding of credit loss provisions to support earnings. Our Q4 estimate for profit before taxes is 1,474 MEUR, EUR 0.33 for EPS, and 14.2% for return on equity. For next year, we expect Nordea to guide for a return on equity above 15%, in line with its financial targets. Our dividend estimate is EUR 0.96 per share, which is closer to the upper end of the profit distribution policy (60-70% of earnings). In addition to dividends, Nordea supplements its profit distribution with share buybacks, the latest program of 500 MEUR having started in December.

The loan portfolio growth outlook is better than before

We have made moderate revisions to our earnings estimates on the back of Nordea's CMD. Our cost estimates are broadly unchanged and anticipate a more moderate cost growth than the bank's targeted level (of around 2% average annual growth), as the current management has an excellent track record of improving efficiency. At the same time, we raised our loan portfolio growth estimates and net interest income margin estimates due to the improved economic outlook in Europe. This also raised our adjusted EBIT estimates by 2-4%.

We now expect Nordea's earnings to stagnate in 2026 and then turn to steady growth due to increasing income and good cost control. Overall, our earnings and profitability estimates are below the company's new targets, which we find very ambitious. However, we expect Nordea's profitability to remain above 15% and gradually improve, which can be considered an excellent level in the competitive banking sector.

Our profit distribution estimates for the next few years, in turn, decreased slightly. Our dividend estimates remained almost unchanged, but based on the CMD presentation, less capital will be allocated to share buybacks than we previously estimated. Profit distribution remains abundant in our forecasts, and we expect the payout ratio to be around 80% in the next few years.

Valuation has turned neutral

With our estimated return on equity of over 15% and a required return of 9.5%, the P/B ratio we accept for Nordea is 1.7-1.9x (increased with the improved profitability estimates, was 1.5-1.8x), which justifies the price level of EUR 15.7-18.3. Our updated target price is closer to the upper end of our fair value range, as we consider Nordea's earnings outlook good despite geopolitical uncertainty. However, due to a strong stock rally, we believe the stock is already neutrally priced, and the combination of profit distribution yield and upside in the price no longer offers a sufficient safety margin against weaker-than-expected performance. The valuation premium relative to peers has also clearly widened. In our calculations, the annual expected return for the coming years is around 9-10%, which corresponds to our required return. The expected return consists of profit distribution (~7%) and a moderate increase in the share price (~2–3%).