UBS (NYSE: UBS) is scheduled to report its fiscal Q2 2021 results on Tuesday, July 20. We expect UBS to edge past the consensus estimates for revenues and earnings. The bank posted lower than expected results in the first quarter of FY2021, despite growth in revenues and EPS on a year-on-year basis. This was mainly driven by lower investment bank revenues due to a drop in the sales & trading sub-segment, which diluted the positive effect of growth in other businesses. Notably, the firm’s investment banking, asset and wealth management, and core banking businesses reported positive growth. That said, we expect the sales & trading revenues to increase in the second quarter. It coupled with the growth momentum in other businesses will drive its second-quarter FY2021 results.
Our forecast indicates that UBS’ valuation is around $18 per share, which is 21% above the current market price of approximately $15. Look at our interactive dashboard analysis on UBS’ pre-earnings: What To Expect in Q2? for more details.
(1) Revenues expected to edge past the consensus estimates in Q2
Trefis estimates UBS’ fiscal Q2 2021 revenues to be around $8.30 billion, marginally above the $8.20 billion consensus estimate. UBS full-year 2020 net revenues (revenues less provisions for credit losses) grew 12% y-o-y to $32.4 billion. It was because of growth in the investment bank segment (sales & trading and investment banking businesses), wealth management, and asset management units. While wealth and asset management benefited from growth in Assets under Management (AuM), the rise in investment banking and sales & trading was due to higher underwriting deal volume and higher trading volumes, respectively. Further, the bank posted strong investment banking, wealth, and asset management results in the first quarter of 2021, too. However, the sales & trading business suffered in the quarter, primarily driven by a $774 million loss as a result of the default by the Archegos hedge fund. That said, we expect the sales & trading to increase in the second quarter, which coupled with growth in other businesses will drive Q2 results.
The sales & trading, and investment banking businesses are likely to see higher trading and underwriting deal volumes for some more time, before normalizing with recovery in the economy. This will likely hurt the UBS’ growth rate, however, an increase in AuM is likely to make up for the loss by benefiting wealth and asset management businesses. Overall, we expect UBS’ revenues to be around $33 billion for FY2021. Our dashboard on UBS revenues offers more details on the company’s segments.
(2) EPS likely to beat the consensus estimates
UBS’ Q2 2021 adjusted earnings per share (EPS) is expected to be $0.47 per Trefis analysis, almost 6% above the consensus estimate of $0.44. The bank’s profitability figures increased in 2020 driven by higher revenues and improved operating margin. However, this growth was somewhat offset by a sizable build-up in the provisions for credit losses from $78 million to $694 million. The same trend continued in the first quarter of 2021, too, with the EPS improving by 16% y-o-y to $0.49. Further, the firm has decreased its provisions over the recent quarters due to some recovery in the economy. We expect the same trend to continue in the FY2021 Q2 results.
We expect the adjusted net income margin to decrease from 20.2% in 2020 to 17.5% in FY2021, leading to a net income of $5.8 billion. It is likely to be driven by higher compensation costs and general & administrative expenses. Overall, the bank is likely to report an EPS of around $1.59 in the year.
(3) Stock price estimate 21% more than the current market price
Going by our UBS’ valuation, with an EPS estimate of around $1.59 and a P/E multiple of just above 11x in fiscal 2021, this translates into a price of $18, which is 21% above the current market price of around $15.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
Think Bitcoin could disrupt the banking industry? Looking for upside from Bitcoin adoption, without buying into the cryptocurrency itself? You can find more about our theme on Cryptocurrency Stocks here.