Why Is UBS (UBS) Up 8.5% Since Last Earnings Report?
A month has gone by since the last earnings report for UBS (UBS). Shares have added about 8.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is UBS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
UBS Group Q1 Earnings & Revenues Jump Y/Y, Expenses Rise
UBS Group AG reported a first-quarter 2024 net profit attributable to shareholders of $1.75 billion, which surged 70.6% from the year-ago quarter.
Results benefited from a rise in total revenues, driven in part by the acquisition of Credit Suisse. However, an increase in operating expenses, along with a significant rise in credit loss expenses affected results.
The performance of the Asset Management, Personal & Corporate Banking and Investment Bank divisions was impressive. However, Global Wealth Management, Non-core and Legacy and Group items segments did not perform well.
Revenues & Expenses Rise
UBS Group AG’s total revenues jumped 45.7% year over year to $12.74 billion.
Operating expenses increased 42.3% year over year to $10.26 billion.
UBS Group reported total credit loss expenses of $106 million, which increased significantly from $38 million in the year-ago quarter.
Business Divisions’ Performance
Global Wealth Management’s first-quarter operating profit before tax was $1.1 billion, down 9.1% year over year. The fall was mainly due to a rise in operating expenses, largely from the consolidation of Credit Suisse expenses.
Asset Management’s operating profit before tax increased 16.8% year over year to $111 million. The rise was mainly driven by the consolidation of Credit Suisse revenues.
Personal & Corporate Banking reported operating profit before tax of $859 million, up 43.6% year over year. The rise was driven by an increase in revenues, mainly due to the consolidation of Credit Suisse revenues.
The Investment Bank unit’s operating profit before tax was $555 million, up 12.8% year over year. The improvement was a result of higher Global Banking revenues, partially offset by lower Global Markets revenues.
Non-core and Legacy reported operating loss before tax of $46 million in the reported quarter compared with a loss of $676 million in the year-ago quarter.
Group items reported operating loss before tax of $320 million compared with a loss of $225 million in the year-ago quarter.
Capital Position Improves
Total assets increased 52.6% from the previous quarter’s end to $1.61 trillion. The increase was mainly driven by the consolidation of Credit Suisse assets.
UBS Group AG’s return on Common Equity Tier 1 (CET1) capital was 9% as of Mar 31, 2024, down from 9.1% as of Mar 31, 2023.
The risk-weighted assets surged 63.7% year over year to $526.4 billion.
The CET1 capital rallied 75.3% year over year to $78.1 billion. As of Mar 31, 2024, UBS Group AG 's invested assets were $5.85 trillion, up 39.8% year over year.
2Q24 Outlook
The company expects a low to mid-single-digit decline in NII in the Global Wealth Management segment due to moderately lower lending and deposit volumes, and low interest rates in Switzerland, partly offset by higher revenues from higher U.S. dollar rates and repricing efforts.
It expects a mid to high-single-digit decrease in NII in Personal & Corporate Banking in U.S. dollar terms. The tax rate is expected to increase in second-quarter 2024 and for 2024, the effective tax rate is expected to be 40%.
Medium & Long-Term Initiatives
With an intention to restructure its business operations, the company is winding-down its Non-Core and Legacy portfolio. This is expected to be completed by the 2026-end and will likely release more than $6 billion of capital.
Further, given the optimization and unwinding benefits, risk-weighted assets are expected to reduce to $510 billion in 2026 from $547 billion as of fourth-quarter 2023. Management estimates the ratio of underlying Group revenues to risk-weighted assets to be around 10% by 2026-end.
These, along with the integration of Credit Suisse, the company aims to achieve gross cost reductions of around $13 billion by 2026-end compared with the 2022 levels. Further, it is targeting an underlying cost to income ratio of less than 70%.
Management forecasts achieving an underlying return on CET1 capital ratio of approximately 15% and 18% by the 2026-end and 2028-end, respectively. The company is aiming to reach more than $5 trillion in invested assets in its Global Wealth Management segment by 2028.
The company is aiming to drive the effective tax rate toward more normalized levels in 2025-2026. It expects the same to be less than 30% in 2025, whereas the metric will likely be 23% in 2026.
The company is expecting to maintain a CET1 capital ratio of 14% and a CET 1 leverage ratio of more than 4%.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months.
VGM Scores
At this time, UBS has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
UBS has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
UBS belongs to the Zacks Banks - Foreign industry. Another stock from the same industry, Barclays (BCS), has gained 2.8% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.
Barclays reported revenues of $8.82 billion in the last reported quarter, representing a year-over-year change of +0.3%. EPS of $0.52 for the same period compares with $0.55 a year ago.
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