Mandatum CMD: Scalable growth from asset management

Translation: Original published in Finnish on 6/5/2025 at 8:39 am EEST.

At Mandatum's Capital Markets Day, the presentations outlined the path to achieving earnings growth targets and presented measures to release balance sheet capital. As expected, there was no significant change in strategic direction, which remains focused on increasing asset management, reducing the with-profit business, and providing an ample dividend stream to shareholders. The roadmap is clearer now than before, especially regarding profit distribution, and the dividend payout will be very generous under the review period. We will review our forecasts in more detail over the coming days. The presentations from Capital Markets Day can be viewed here.

Clearer payout outlook for the coming years

Mandatum explained the background assumptions for its updated payout ratio target in its Capital Markets Day presentation. In addition, the dividend distribution for 2025-2028 was expected to be somewhat front-loaded, which would mean that the capital proceeds from the sale of Saxo Bank would already be distributed as part of next year's dividend. This is also required by the target of a total payout of more than 1.0 BNEUR for the period 2025-2028, but taking this into account, the company will reach its target quite easily. Acquisitions were barely mentioned, so we believe the payout ratio target should be considered a very binding lower limit that the company does not want to deviate from. Thus, there is room for upward revision in our and the consensus payout forecasts, especially for the 2025 dividend. The reduction in the solvency target range also positively impacts the payout outlook, albeit to a much lesser extent than the capital outflow from Saxo Bank. Overall, the company will become even more generous in its profit distribution.

ROE target requires balance sheet optimization

Reducing the with-profit business is key to achieving the return on equity target (above 20%), which the company illustrated by presenting its ROE calculations for its different businesses. While the capital-light businesses achieve a return on equity of around 35%, the figure for the with-profit business is around 10%. Given the updated payout ratio target, we consider the 20% ROE target to be quite realistic. This is mainly due to the fall in equity capital resulting from the profit distribution (a declining with-profit portfolio and sales of PE investments), though earnings growth in wealth management also has a positive impact.

Growth targets are tough but achievable

Mandatum's goal of achieving profit growth above 10% in capital-light businesses is based on two factors: 1) growth in assets under management and disciplined pricing, and 2) further improvements in cost control. In this respect, the company's assumptions have therefore not changed from the previous strategy period. In the presentation, Mandatum specified that it expects assets under management to grow at an average annual rate of around 10%. Half of this (5%) is to be achieved through new sales and the other half through positive value changes. Therefore, the sales growth rate assumption remains unchanged, even though it is no longer an official target.

In addition to asset management, the capital-light businesses include life risk insurance, which had an exceptionally high result in 2024 due to one-off items. Thus, the CAGR target (+10%) for the strategy period will require an even stronger increase in the asset management result. In addition to the revenue growth, earnings growth continues to be supported by an improving cost/income ratio. The company is targeting an annual cost growth of only 1% over the strategy period, which would be an excellent level if achieved. A key factor behind the company's very modest cost projection is IT systems, where costs will decrease as system modernizations are completed.

Asset management continues on familiar lines

The outlook for the group's actual growth engine, namely institutional and wealth management, was presented by Janne Sarvikivi, the new Head of the business area, and Juhani Lehtonen, Mandatum's Chief Investment Officer. No major new direction is expected, but a few interesting topics emerged during the day.

First, the company will continue its successful internationalization by expanding deeper into Western Europe beyond its current markets. The spearhead products are, as usual, fixed income funds. We also anticipate that this will result in a modest increase in sales personnel, as management's comments suggest that they intend to keep primary control of distribution within the company. However, one should not become overly optimistic about instant international growth, as the company's culture is to seek profits gradually and with moderate risk. We believe small local acquisitions could be another logical way to accelerate international growth.

In addition, Mandatum will invest in expanding its product offerings. There will be a stronger emphasis on equity products, which is not particularly surprising, given Sarvikivi's previous role as head of Nordea's equities. We estimate that these are targeted at domestic customers.

It was also interesting to hear the company's views on its differentiating factors in the domestic asset management market. In addition to strong product performance, high-quality service, and a focus on reporting to customers stood out. For international clients, the level of return is, of course, the only relevant factor.

Corporate customers are an excellent sales channel for wealth management

On the corporate side, Mandatum continues to see strong growth potential in its existing customer base, both in corporate insurance and in the sale of wealth management solutions. For instance, 65% of new wealth management clients in 2024 came through corporate contacts, highlighting Mandatum's excellent distribution power among Finnish corporate clients and entrepreneurs. Wealth management for wealthy individuals is also Mandatum's most profitable business.

Somewhat surprisingly, risk life insurance for corporate customers was also highlighted as having potential. One reason given by the company is that risk life insurance can cover all company personnel, whereas supplementary pension insurance and reward schemes are usually only offered to key employees. To support its growth efforts, the company plans to hire more sales staff for its corporate customer business. While we believe the growth outlook for corporate business is good, the relatively high market share, especially in unit-linked pension insurance, limits its potential.

Story firmly on track

As for the with-profits business, there were no dramatic changes presented throughout the day, with the business focusing on gradually reducing the portfolio and enabling the group to distribute generous dividends. In addition to reducing the portfolio, increasing the share of fixed-income investments frees up distributable capital thanks to their lower capital requirements.

Overall, Mandatum's capital markets day confirmed the direction already outlined at the time of the IPO, consisting of an increase in asset management, a ramp-down of the with-profit business and the return of excess capital to shareholders in the form of dividends.