UBS shares are trading close to their intrinsic value – Trefis

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[Updated 12/17/2021] UBS valuation update

UBS ‘ Stock (NYSE: UBS) has gained 26% year-to-date, and at its current price of $ 18 per share, it is trading 4% below its fair value of around $ 19 – Trefis estimate for UBS valuation. The bank reported better-than-expected results in the third quarter of fiscal 2021, with the bank’s net income (income less provisions for credit losses) increasing slightly to reach $ 9.1 billion. It was driven by 17% year-on-year growth in the wealth management division, driven by an increase in assets under management (AuM), followed by a similar increase in the personal and corporate banking unit. . Growth was partially offset by a 49% year-on-year decline in asset management revenues, driven by a one-time gain of $ 571 million from the sale of a controlling stake in Fondcenter AG in the third quarter of 2020 In addition, operating profit rose nearly 11% year-on-year to $ 2.9 billion, mainly due to lower provisions for credit losses – the figure fell to – $ 14 million. against 89 million dollars in the previous quarter.

The bank’s net income in 2020 increased 12% year-on-year to $ 32.4 billion. This is mainly due to the growth in sales and trading and investment banking activities due to the Covid-19 crisis. In addition, income from wealth management and asset management benefited from a higher amount under management during the year. Revenue growth was partially offset by some negative growth in the personal and business banking segment due to headwinds in interest rates. The same growth continued into 2021, with nine-month cumulative revenue increasing 10% year-over-year to $ 26.8 billion. It was driven by a 15% year-over-year increase in the wealth management unit, followed by a 19% jump in the personal and corporate banking unit. That said, the investment bank recorded stagnant income as growth in equity trading and investment banking was offset by lower income from FICC trading (fixed income, currencies and commodities). While asset management revenues declined year over year due to the effect of the one-time gain received last year, excluding which, it recorded positive growth driven by an increase in assets under management. We expect the same trend to continue in the fourth quarter, allowing UBS turnover to hit $ 35.3 billion in fiscal 2021, up 9% year-on-year. Additionally, the company is expected to report net income of approximately $ 6.5 billion during the year. This will likely allow the company to post EPS of $ 1.78, which when paired with a P / E multiple of just above 10x will lead to a valuation of close to $ 19.

Below is our previous UBS coverage where you can follow our perspective over time.

[Updated 09/17/2021] UBS share has limited rise

UBS shares (NYSE: UBS) has gained 18% year-to-date, and at its current price of $ 17 per share, it is trading 9% below its fair value of $ 18 – Trefis estimate for UBS valuation. The bank exceeded profit and revenue expectations in the second quarter of fiscal 2021 results and its stock has gained 10% since then. It said net income (income minus provisions for credit losses) of $ 8.98 billion, up 21% year-on-year. Its wealth management division saw revenue increase 19% year-on-year, driven by an increase in assets under management (AuM), followed by a 27% jump in the asset management segment. In addition, provisions for credit losses fell to – $ 80 million from $ 272 million in the prior quarter. In total, this translated to a 63% year-over-year increase in net profit to $ 2 billion.

The company’s net revenue of $ 32.4 billion in 2020 was 12% higher than the previous year. The bank experienced 30% year-on-year growth in the investment banking segment (including sales and trading and investment banking businesses), driven by unusually high transaction volumes and increased sales and trading. subscription volumes. In addition, wealth management and asset management revenues increased due to the increase in assets under management (AuM). In addition, the income from asset management and wealth management for the first half of 2021 also followed the same trend as in 2020. However, the flow from investment banks decreased by 4% year-on-year. , mainly due to the decline in FICC income (fixed income, currencies and commodities). . Going forward, we expect investment banking to show stagnant growth in 2021. In addition, the wealth and asset management business is expected to continue on its growth path. Globally, UBS turnover are expected to reach $ 34.5 billion in fiscal 2021, up 6% year-on-year. Additionally, the company is expected to report net income of approximately $ 6.2 billion during the year. This will likely allow the company to report EPS of $ 1.69, which together with a P / E multiple of around 11x will lead to a valuation of $ 18.

[Updated 06/07/2021] Is UBS stock still undervalued?

UBS shares (NYSE: UBS), the world’s largest wealth manager, has gained around 17%, from around $ 14 at the start of 2021 to around $ 16 currently, ahead of the S & P500, which has risen 13% over the course of the same period.

There were two main reasons for this: First, the approval of the $ 1.9 trillion stimulus package in the United States Second, the accelerated vaccination campaign against Covid-19 in the United States and Switzerland. The above two factors reinforce the outlook for a strong economic recovery.

But is that all there is in the story?

Not quite, despite recent gains, says Trefis UBS valuation at around $ 18 per share – 10% above the current market price – based on a key opportunity and risk factor.

The opportunity we see is an improved trajectory for UBS revenues during the following quarters. UBS’s net income for full year 2020 (income less provisions for credit losses) increased 12% year-on-year to $ 32.4 billion. It was mainly driven by a 27% year-on-year jump in the investment banking division (sales & trading and investment banking activities) followed by growth in wealth management and asset management units. While the rise in investment banking was driven by higher transaction and subscription volumes, wealth management and asset management benefited from the growth in assets under management (AuM), which increased by 14% yoy to $ 3 trillion and 21% yoy to $ 1.1 trillion, respectively. On the other hand, the bank announced a 2% drop in its net banking income to individuals and businesses due to an accumulation of provisions for credit losses.

The bank missed consensus estimates for revenue and profit in the first quarter of fiscal 2021. As net income increased 10% year-on-year to $ 8.7 billion, the bank suffered a loss of $ 774 million in the quarter due to the failure of the Archegos hedge fund. It recorded a 7% year-on-year decline in its investment banking division, driven by lower sales and transaction income, partially offset by growth in investment banking. In particular, the wealth management and asset management activities also continued their growth momentum in the first quarter, thanks to the growth in assets under management. In addition, the personal and commercial banking segment grew 15% year-on-year, driven by higher non-interest income and lower provisions for credit losses. That said, we expect sales and trading and investment banking activities to see higher trading and underwriting volumes for some time to come, before normalizing as economic conditions recover. In addition, growth in assets under management is expected to drive growth in the wealth and asset management business during the year. Overall, we expect UBS’s revenue to reach around $ 33 billion in fiscal 2021.

The adjusted net margin is expected to decrease in fiscal 2021 from 20.2% to 17.5%, due to higher operating expenses. This should reduce EPS from $ 1.77 to $ 1.59 for the year, which together with the P / E multiple of just above 11x will lead to a valuation of around $ 18.

Finally, how much should the market pay per dollar of UBS profit? Well, to make almost $ 1.59 a year from a bank today, you would have to deposit around $ 159 into a savings account, which is around 100 times the desired earnings. At the current UBS share price of around $ 16, we’re talking about a P / E multiple just above 10x. And we think a figure closer to 11x will be appropriate.

That said, banking is a risky business at the moment. While growth is likely, a change in current market sentiment can hurt the near-term outlook. What is behind this?

The bank has a portfolio of around $ 146 billion in personal and business bank loans (according to figures from March 2021). It increased its provisions for credit losses in fiscal 2020 to offset the higher risk of default. In particular, provisions have experienced a favorable decline in recent quarters, signaling some improvement in the repayment capacity of its clients’ loans. However, any sudden increase in Covid-19 cases or deteriorating economic conditions can expose UBS to significant defaults. In addition, the deterioration of the economic scenario may adversely affect asset valuations, which has a negative impact on UBS’s wealth and asset management activities. To sum up, we think the UBS stock is somewhat undervalued.

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Return Dec 2021
MTD [1]
2021
YTD [1]
2017-21
Total [2]
UBS Return -1% 26% 34%
Return of the S&P 500 0% 25% 109%
Trefis MS Portfolio Return -1% 42% 282%

[1] Monthly cumulative and annual cumulative on 12/17/2021
[2] Total cumulative returns since 2017


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