UBS Earnings Preview: Earnings Beat On The Cards For UBS?

by Trefis Team
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UBS (NYSE: UBS) will release its Q4 and full-year 2019 results on Tuesday, January 21. Trefis details expectations from the Swiss banking giant in an interactive dashboard, parts of which we highlight below. We believe that UBS will likely report an earnings beat for FY19 despite revenues being just shy of consensus estimates. The bank’s revenues would have decreased 4.5% year-on-year to $28.9 billion (slightly below the consensus estimate of $29 billion), primarily due to a reduction in trading revenues as well as investment banking fees. Also, the EPS figure should have reduced to $1.25 from $1.28 in 2018 despite an expected reduction in expenses because of weaker revenues. However, our EPS estimate is above the consensus estimate of $1.20. Further, we believe that stronger-than-expected earnings for FY 2019 are likely to overshadow the revenue decline and will likely result in UBS’s stock trending higher once it announces earnings. Our forecast indicates that UBS’s valuation is $16 a share, which is roughly 20% above the current market price.

Trefis shines the spotlight on key assumptions and data for UBS, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for UBS’s FY19 earnings in our interactive dashboard.

(1) UBS’s revenues would have decreased to $28.9 billion in 2019, slightly below consensus estimates

  • Trefis estimates UBS’s 2019 revenues to be $28.9 billion, slightly below the consensus estimate of $29 billion.
  • UBS’s total revenue has seen sizable headwinds since 2015 and has shrunk from $31.8 billion to around $30.3 billion in 2018.
  • We believe that this trend continued in 2019 as the uncertain environment and weak consumer sentiments would have weighed on the bank’s revenue.
  • The bank is likely to witness a drop in revenues across all operating heads, with equity trading revenues expected to be hit the most.
  • Moreover, advisory and underwriting revenues are also likely to have tumbled due to a global decline in the debt and equity underwriting deal volumes.
  • Notably, wealth management, which is the company’s most significant growth driver, is also likely to see a drop in revenues. Global headwinds are expected to have weighed on the segment’s revenues for 2019, with revenues declining 4.8% y-o-y to $16.1 billion.
  • The division is likely to have grown its client assets, but lower average fees would have dragged down revenues.
  • For FY 2020, we expect UBS’s revenue to achieve steady growth and add close to $700 million in incremental revenues from its retail banking and wealth management operations.

We explain the importance of its wealth management operations for UBS in detail in a separate interactive dashboard.

 (2) EPS is likely to decrease by 2.5% from $1.28 in 2018 to $1.25 in 2019, which is higher than the consensus estimates

  • UBS’s 2019 earnings per share (EPS) are expected to be $1.25 per Trefis analysis, 4% higher than the consensus estimate of $1.20 per share.
  • A decrease in revenues will negatively impact the company’s bottom line, with the company’s EPS expected to decline by 2.5% compared to 2018.
  • As we forecast UBS’s expenses to drop at a faster rate than revenues in 2019 (-5% vs. -4.5%), this will result in a 40 basis points increase in UBS’s Net Income Margin figure from 16.1% in 2018 to 16.5% in 2019. This reduction in expense is likely to be driven by a steep decline in general & administrative expenses, as well as lower personnel expenses.
  • For 2020, we believe that healthy growth in revenues coupled with slower growth in expenses will result in the adjusted net income margin figure increasing slightly to 17.1%

 (3) Stock price estimate ~20% higher than the market price

  • A trailing P/E multiple of 12.6x looks appropriate for UBS’s stock, which is higher than the current implied P/E multiple of 10.9x
  • Trefis’ forecast for UBS’s 2019 earnings, as well as P/E multiple, are higher than the market expectations, working out to a fair value of $16 for UBS’s stock, which is roughly 20% higher than the current market price of around $13.

Additionally, you can input your estimates for UBS’s key metrics in our interactive dashboard for UBS’s pre-earnings, and see how that will affect the company’s stock price.

 

See all Trefis Price Estimates and Download Trefis Data here

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