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Why Is UBS (UBS) Up 16.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for UBS (UBS - Free Report) . Shares have added about 16.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is UBS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

UBS Group Q3 Earnings Improve Y/Y, Expenses Increase

UBS Group reported third-quarter 2020 net profit attributable to shareholders of $2.09 billion, up significantly from $1.05 billion in the prior-year quarter.

The company’s performance was supported by a rise in net fee and commission income (up 8% year over year) along with a rise in net interest income (up 39%). However, higher expenses posed as a headwind.

It recorded higher profitability in Asset Management, Global wealth management and Investment Bank units. However, performance of the Personal & Corporate banking unit was disappointing.

Operating Income Climbs, Expenses Rise

UBS Group’s operating income increased 26% to $8.94 billion from the prior-year quarter.

Operating expenses rose 11% to $6.36 billion in the third quarter. The rise was due to higher personal expenses.

The company reported credit loss expenses of $89 million in the third quarter, up substantially from $38 million in the year-ago quarter.

Business Division Performance

Global wealth management’s operating profit before tax was $1.06 billion, up 18% year over year. Higher transaction-based income on continued high levels of client activity and greater market volatility supported results. Net new money inflows were $1.4 billion.

Asset Management’s operating profit of $739 million rose significantly year over year from $124 million, mostly driven by the sale of a majority stake in Fondcenter AG. On an adjusted basis, profits climbed 42%, supported by a substantial rise in performance fees. Also, invested assets jumped 14% to $980 billion.

Personal & Corporate banking reported operating profit before tax of $335 million, down 6% year over year. Higher credit loss expenses and operating expenses were partly offset by higher income. Annualized net new business volume growth for personal banking was decent at 5.8%.

Investment Bank unit’s operating profit before tax was $632 million, up considerably from $172 million in the prior-year quarter. Higher volumes and volatility, particularly in Foreign Exchange, Rates and Cash Equities revenues, aided bottom-line growth. Rise in expenses was a headwind.

Group Functions incurred operating loss before tax of $184 million in the quarter compared with a loss of $200 million in year-ago quarter.

Strong Capital Position

As of Sep 30, 2020, UBS Group's invested assets were $3.81 trillion, up 6% sequentially. Total assets increased slightly to $1.07 trillion from previous quarter.

The company’s phase-in common equity tier (CET) 1 ratio was 13.5% as of Sep 30, 2020, compared with 13.1% on Sep 30, 2019. Phase-in CET 1 capital increased 10% to $38.2 billion. Fully applied risk-weighted assets increased 7% to $283.1 billion from the year-ago quarter.

Outlook

The company expects credit loss expenses to be low in the fourth quarter of 2020 compared with the first half of 2020.

UBS Group is taking action to improve net interest income, including loan growth, which is likely to partly offset the current U.S. dollar interest rate headwinds. Further, the pandemic and political uncertainties may have an impact on market volatility, which could affect client activity positively or negatively.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.


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