UBS: strong first quarter results, target to buy (NYSE:UBS)

After analyzing Credit Suisse (CS), focus today on the other Swiss giant UBS Group AG (NYSE: UBS). Results of UBS, one of the first two major European banks to publish its results alongside HSBC (HSBC), provided a contrasting picture with the decline in profits recorded by US banks.

UBS’s first-quarter net profit rose 17%, the highest since 2007, reversing expectations of a decline due in part to uncertainties over the war in Ukraine, weaker economic growth prospects and pressures inflationary.

With respect to Russia, UBS has previously described its market risk exposure to Russia as “limitand said today it has reduced its exposure to $400 million from the previously announced $600 million. In addition, the CEO said there is no material exposure to Ukraine or Belarus, and as with many other companies, there are no plans to conduct new business in Russia or with Russian-based customers.

Q1 results

Looking at the division’s financial performance, in Global Wealth Management, operating income increased 1% year-on-year driven by a 7% increase in net recurring commissions, driven primarily by new business and positive market performance. Interest income increased by 14% and was supported by deposits and income, driven by higher volumes and higher loan income. In Personal and Commercial Banking, operating income rose 3%, driven by strong commercial momentum.

While in asset management, operating income decreased by 9% on an annual basis. As the company stated: “as an increase in net management fees was more than offset by a decrease in performance fees from particularly high levels in 1Q21.” Invested assets decreased 5% sequentially to $1.154 billion. Net new inflows were $7.7 billion ($14.2 billion excluding cash flows). Finally, in Investment Banking, operating profit rose by 28%.

The CET 1 ratio was 14.3% at the end of March compared to 15% at the end of 2021, in any case beyond the guidance of 13%. RoCET1 capital came in at 19% above company guidance of 15-18%. The cost/income ratio was 70.7%, within the indicative range of 70 to 73%, and down 3.1 percentage points year-on-year.

UBS repurchased $1.7 billion in shares in the first quarter and intends to repurchase a total of approximately $5 billion in 2022.

The results show Switzerland’s biggest bank is on track to meet Hamers’ February targets and has widened the gap with rival Credit Suisse, which reported a first-quarter loss last week. We value UBS with a buy rating and target price of CHF 22 per share, implying a 33% discount. Our valuation is supported by a sum-of-the-parts model based on UBS’s business areas with a sustainable ROTE (return on tangible equity) of 14.5% on average.

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