UBS Stock Is Trading Below Its Fair Value

UBS’ stock (NYSE: UBS) has gained 14% YTD, whereas the S&P500 has increased 7% over the same period. Further, at the current price of $20 per share, it is 13% below its fair value of $23 – Trefis’ estimate for UBS’s valuation. The bank agreed to acquire Credit Suisse earlier this month for $3.2 billion. Notably, the deal was pushed by Swiss regulators to bail out Credit Suisse from its difficult liquidity position. While details about the integration are yet to be officially disclosed, it is likely to take 3-4 years.

The Swiss bank posted better-than-expected profits in the fourth quarter of 2022, despite an 8% drop in total revenues to $8.03 billion. The top line suffered due to a 24% decrease in investment bank revenues, followed by a 31% decline in asset management, and a 5% drop in the global wealth management divisions. That said, the personal & corporate banking revenues grew 5% y-o-y driven by higher net interest income. Further, the noninterest expenses decreased 13% y-o-y, leading to an adjusted net income of $1.65 billion – up 23% y-o-y.

UBS’s net revenues marginally decreased to $34.56 billion in FY2022. It was driven by a 2% decrease in wealth management and an 8% drop in the investment bank units, almost offset by a 13% increase in asset management and a 1% rise in personal & corporate banking revenues. On the cost front, the operating expenses were reduced by 4% y-o-y, improving the adjusted net income by 2% y-o-y to $7.63 billion.

Moving forward, we forecast UBS’ revenues to remain around $35.23 billion in FY2023. Additionally, UBS’ adjusted net income margin is likely to remain around the same level as the previous year. It will likely result in an annual GAAP EPS of $2.32, which coupled with a P/E multiple of just below 10x will lead to a valuation of $23.

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[1] Month-to-date and year-to-date as of 4/3/2023
[2] Cumulative total returns since the end of 2016

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