UBS (NYSE: UBS) is scheduled to report its fiscal Q3 2021 results on Tuesday, October 26. We expect UBS to top the revenue and earnings expectations. The bank outperformed the consensus estimates in the last quarter, with net revenues (revenues minus provisions for credit losses) of $8.98 billion – up 21% y-o-y. It was driven by a 19% y-o-y growth in the wealth management business, followed by a 27% increase in the asset management segment. Further, its adjusted net income increased 63% y-o-y to $2 billion. It was because of higher revenues, a drop in operating expenses as a % of revenues, and a favorable decrease in the provisions for credit losses. We expect the same trend to continue in the third quarter.
(1) Revenues expected to be just ahead of the consensus estimates
UBS’ revenues for full-year 2020 were $32.4 billion – 12% above the year-ago period. It was driven by a 30% y-o-y jump in investment bank division (sales & trading and investment banking), followed by some growth in wealth management and asset management revenues.
- UBS generated around 25% of the total revenues from the investment bank segment in 2019. The revenue share increased to 29% in 2020, with the bank posting investment bank revenues of $9.5 billion – up 30% y-o-y. The growth was driven by higher trading volumes and a jump in underwriting deal volumes due to the impact of the Covid-19 crisis. The pattern changed in the first quarter of 2021, as the segment revenues declined 12% y-o-y due to negative growth in sales & trading business (mainly fixed income, currency, and commodity (FICC) trading). The firm reported a 4% y-o-y growth to $2.5 billion in Q2 due to an increase in investment banking revenues, partially offset by lower sales & trading revenues. We expect the same trend to continue in the third quarter.
- Wealth management and asset management cumulatively represent close to 62% of the UBS’ top-line. The segments grew 5% and 53% respectively in 2020, due to growth in Assets under Management (AuM). The asset management AuM increased to $1.1 trillion in the year – up 21%, coupled with a 14% growth in wealth management AuM to around $3 trillion. Further, the same trend continued in the first and second quarters of 2021. Notably, the asset management and wealth management AuM stand at $1.17 trillion and $3.23 trillion respectively at the end of Q2. We expect the segment to follow the same trend in the third quarter.
- Overall, we expect UBS’ revenues to touch $34.5 billion for FY2021.
Trefis estimates UBS’ fiscal Q3 2021 revenues to be around $8.60 billion, just above the $8.50 billion consensus estimate. We expect the growth in AuM to drive the third-quarter results.
Moving forward, we expect the investment bank revenues to normalize over the subsequent quarters, with recovery in the economy. However, wealth and asset management segments will likely drive growth in FY2021. Our dashboard on UBS’ revenues offers more details on the company’s operating segments along with our forecast for the next two years.
2) EPS is likely to beat the consensus estimates
UBS Q3 2021 adjusted earnings per share (EPS) is expected to be $0.45 per Trefis analysis, almost 5% above the consensus estimate of $0.43. The bank’s adjusted net income increased 52% y-o-y to $6.6 billion in 2020, due to higher revenues and lower operating expenses as a % of revenues. The same trend continued in the first and second quarters of 2021, with adjusted net income increasing by 14% and 63% respectively. We expect the trend to continue in the third quarter.
Going forward, we expect UBS’ net income margin to decrease from 20.2% to around 18% in FY2021, leading to an adjusted net income of $6.2 billion. This will likely result in an EPS of $1.69.
(3) Stock price estimate 6% higher than the current market price
We arrive at UBS’ valuation, using an EPS estimate of around $1.69 and a P/E multiple of just below 11x in fiscal 2021. This translates into a price of approximately $18, which is 6% above the current market price of around $17.
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
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