What To Expect From UBS Stock?

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UBS’ stock (NYSE: UBS) has gained 3% YTD, whereas the S&P500 has decreased 24% over the same period. Further, at the current price of $14 per share, it is 30% below its fair value of $20 – Trefis’ estimate for UBS’s valuationThe Swiss bank missed the consensus estimates in the second quarter of 2022, with net revenues (revenues less provision for credit losses) marginally decreasing to $8.9 billion. It was due to a 14% drop in the investment banking business and a 2% decline in wealth management revenues. The investment bank mainly suffered due to a 71% decrease in underwriting revenues. Similarly, wealth management was down due to lower client activity levels and lower fee-generating assets. On the flip side, asset management units posted growth in the quarter because of an $848 million net gain from the disposal of a joint venture. Overall, the adjusted net income improved by 5% y-o-y to $2.1 billion. The growth was mainly due to a drop in income tax provisions in Q2 as compared to the year-ago figure.

The bank’s net revenues increased 10% y-o-y to $35.5 billion in 2021. However, the growth rate slowed down to just 3% y-o-y in the first half of 2022, leading to net revenues of $18.3 billion. It was because of stagnant growth in the wealth management segment, as an increase in net interest income was offset by lower fee revenue. Notably, wealth management contributes more than 50% of the top line. On the flip side, asset management revenues rose by 50% y-o-y, followed by a 6% increase in the investment bank unit. The asset management division benefited from a one-time gain in Q2, whereas growth in the investment bank was due to higher sales & trading revenues. All in all, the adjusted net income improved by 11% to $4.2 billion.

The Federal Reserve has raised the benchmark interest rates five times in the year. This move has helped the net interest margin of lenders, which is likely to continue over the subsequent quarters. Notably, the consensus estimates of Q3 revenues and earnings are $8.2 billion and $0.45 respectively. We estimate UBS’ revenues to be around $35.6 billion in FY2022. Additionally, UBS’ adjusted net income margin is likely to remain around the same level as the previous year. It will likely result in an adjusted net income of $7.35 billion and an annual EPS of $2.04. This coupled with a P/E multiple of just below 10x will lead to a valuation of $20.

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