UBS Stock Outperformed The Street Expectations In Q1, What’s Next?

UBS’ stock (NYSE: UBS) has gained 3% YTD, whereas the S&P500 has decreased 17% over the same period. Further, at the current price of just above $18 per share, it is marginally below its fair value of $19 – Trefis’ estimate for UBS’s valuation. The Swiss bank topped the consensus estimates in the first quarter. It posted net revenues (revenues less provision for credit losses) of $9.4 billion – up 8% y-o-y. It was driven by a 10% increase in the net interest income (NII) and a 70% jump in the other net income from financial instruments measured at fair value. Notably, this unusual growth was due to a loss of $774 million incurred in Q1 2021 on the default of a US-based client of the prime brokerage business. On the flip side, net fee and commission income decreased by 6% y-o-y. Overall, the adjusted net income improved 17% to $2.1 billion, partly due to the growth in the top line and partly due to lower operating expenses as a % of revenues.

The bank’s net revenues increased 10% y-o-y to $35.5 billion in 2021. This was primarily due to a 14% growth in wealth management and a 19% rise in personal & corporate banking divisions. While the growth in wealth management was driven by an increase in Assets under management (AuM), the personal & corporate banking unit benefited from higher non-interest income. Notably, the company is heavily dependent on the wealth management business, which contributes close to 50% of the top line. All in all, the adjusted net income grew 14% y-o-y to $7.5 billion, mainly due to a favorable decrease in the provisions for credit losses and lower operating expenses as a % of revenues.

The anticipated improvement in the benchmark interest rates over the coming months is likely to benefit the NII of the bank. That said, the investment bank revenues are likely to normalize over the subsequent quarters, with a recovery in the economy. Overall, UBS revenues are expected to remain around $34.1 billion in FY2022. Additionally, UBS’ adjusted net income margin is expected to see a slight drop in the year. This will likely result in an adjusted net income of $7 billion and an annual EPS of $1.93. This coupled with a P/E multiple of just below 10x will lead to the valuation of $19.

Here you’ll find our previous coverage of UBS stock, where you can track our view over time.

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[1] Month-to-date and year-to-date as of 5/24/2022
[2] Cumulative total returns since the end of 2016

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