Translation: Original published in Finnish on 5/7/2025 at 10:21 pm EEST.

Sampo's Q1 report was excellent in all respects, and we have made some distinct positive upward revisions to our estimates. The outlook for earnings growth over the next few years is very good, and the risk level to earnings growth has continued to decline. The stock is starting to look pricey, but strong earnings growth and a flowing dividend stream provide just enough expected returns. We revise Sampo's target price to EUR 9.8 (previous EUR 8.6) and reiterate our Accumulate recommendation.

An excellent start to the year

Sampo's insurance revenue increased by 8% to 2,188 MEUR, in line with expectations. As usual, the growth was driven by price increases in the Nordic countries and new sales in the UK. Insurance-technical profitability was excellent, and the combined ratio fell from the weak comparison period to 84.6%. As a result, the important underwriting result also increased slightly more than expected to 336 MEUR. The excellent underwriting result was underpinned by revenue growth, mild weather conditions in the Nordic countries and a calm competitive environment. Overall, profit before taxes amounted to 377 MEUR, significantly exceeding expectations.

Guidance revised upwards and synergy estimate for Topdanmark increased

Following a strong start to the year, Sampo also revised its guidance upwards, which was no surprise as the consensus was already above the guidance before the better-than-expected Q1 result. Sampo also increased its synergy estimate for Topdanmark from 95 MEUR to 140 MEUR. Although we had considered the previous level of synergies to be conservative, such a sharp increase so early in the integration process is a positive surprise. The company also said in the earnings call that new synergies may still be found along the way.

Forecasts raised significantly

For 2025, the forecast changes have been small, but for 2026-2027, our earnings forecasts have increased substantially (7-12%) by Sampo standards. Our estimates for 2025 are at the top end of the guidance. With our updated earnings forecasts, we expect the company to be able to grow its operating result by more than 10% on average between 2024 and 2028. The main driver is of course the underwriting result, and the rest comes mainly from the share series, which is reduced by the purchase of own shares. Overall, Sampo's earnings growth is currently on a very strong footing. The company is growing rapidly on the basis of its strong digital capabilities, profitability is at an excellent level and the threat from competitive pressure has dissipated with lower interest rates. Although lower interest rates are putting pressure on the company's investment returns, this is of limited significance as they only account for a quarter of the group's result. We have also increased our dividend projections for 2026-2027 by 11-13%. We expect the basic dividend to grow steadily in line with earnings per share (around 10%/year), and in addition the company will buy back shares annually with its excess capital.

Expected return just barely sufficient

We continue to view P/E multiples of around 16-17x as an acceptable valuation level for Sampo, which is in line with the historical levels of key peers. As a result of the strong earnings growth we forecast for the coming years, the P/E will fall to ~15-16x. These levels are by no means cheap, but on the other hand, we believe they are fully justified given Sampo's excellent performance and strong earnings outlook. The dividend will remain at 4-5% for the next few years, rising to 5-6% if share buybacks are taken into account. Compared to the main peers Gjensidige and Tryg, Sampo's pricing is quite well in line. Overall, we see Sampo as correctly priced. We still see earnings growth and dividend as providing a barely adequate expected return, especially when viewed in the context of low risk levels. The current share price sets the bar high, and without earnings growth the stock would be expensive.