Translation: Original published in Finnish on 2/6/2025 at 8:40 pm EET.

We revise our Sampo target price to 43.0 EUR (was 42 EUR) and raise our recommendation to Accumulate (was Reduce). Sampo's Q4 report was very good and we have raised our estimates for future profit distributions. In light of our updated forecasts, we see the expected return as just enough for a positive recommendation, although the stock is not significantly undervalued.

Excellent Q4 report

The Q4 result was very good in all respects. As expected, reported EBIT was weighed down by 150 MEUR one-off items related to the Topdanmark integration, and the adjusted EBIT of 369 MEUR were better than our and consensus expectations (354 and 346 MEUR, respectively). If P&C continued its convincing growth and the underwriting result was well ahead of expectations. Although investment returns were below expectations, their significance is limited. Hastings also continued its strong growth and profitability was at a good level.

In line with our expectations, Sampo will pay a basic dividend of EUR 1.7 per share (2023: EUR 1.6). The additional dividend we forecast will not be paid, but the company announced that it will start a new share buyback program in the spring. Solvency remains at a very strong level and will allow for ample profit distributions in the coming years.

Revenue and underwriting development included in guidance

Sampo's outlook was a surprise as, as in previous years, the company did not provide any guidance on the development of the combined ratio. Instead, Sampo provided guidance ranges for insurance revenue and underwriting result for 2025. Insurance revenue is expected to amount to 8.7-9.0 BNEUR (+4-7%) and underwriting result 1,350-1,450 MEUR (+3-10%). Even before the result, our forecasts were well in line with the company's guidance.

Steadily growing earnings with generous payouts

We have made only marginal changes to our earnings forecasts. Our view on Sampo's performance has remained unchanged and we estimate that the company's normal earnings under the current structure is about EUR 2.5-2.6 per share The level should be growing steadily, driven by the Topdanmark merger, operating profit growth and share buybacks, but larger-level adjustments should not be expected given the current excellent performance of the businesses. The promised synergies of 95 MEUR from the Topdanmark/If P&C merger are, in our view, conservative and we would not be surprised if the final figure is significantly higher. However, we note that it will take several years for the synergies to materialize. We believe the company's sustainable earnings growth rate over the next few years is +5%/year. We have raised our estimates for profit distribution in the coming years. We expect a steadily increasing basic dividend and regular share buybacks of a significant size. Our payout forecast is above consensus, and we see pressure from the consensus to raise their payout forecasts.

Expected return is just adequate

In our valuation, our focus is particularly on the dividend model, as the investment needs of the business are low and Sampo is able to distribute most of its earnings to its shareholders. The value of Sampo's shares under our dividend model, which takes into account excess capital on the balance sheet, has increased slightly to EUR 43. In absolute terms, we believe the valuation is at a reasonable level, and we do not believe a slight downgrade relative to key peers is warranted. Thus, we see the stock offering just a barely sufficient expected return as a combination of earnings growth and dividends. In addition, investors have the option that Sampo will start to trade at a premium to its peers in the market, which would also allow multiples to increase somewhat.