It has been about a month since the last earnings report for UBS (
UBS Quick Quote UBS - Free Report) . Shares have added about 7.4% 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 its most recent earnings report in order to get a better handle on the important drivers.
UBSGroup AG’s Q1 Earnings Impress on Higher Operating Income
UBS Group AG reported first-quarter 2022 net profit attributable to shareholders of $2.1 billion, up 17.1% from the prior-year quarter’s level.
UBS Group AG’ performance was driven by a 10% rise in NII compared with the prior-year quarter. Strong capital position was a tailwind. Nonetheless, higher expenses and a 5% decrease in net fee and commission income year over year affected the results. Performance of Investment Bank and Personal & Corporate Banking divisions were impressive in the quarter. However, lower profitability was recorded in the Global Wealth Management and Asset Management divisions. Operating Income Climbs, Expenses Rise
UBS Group AG’s operating income increased 7.7% to $9.4 billion from the prior-year quarter’s level.
However, operating expenses increased 3.5% to $6.6 billion in the first quarter. This rise was largely as a result of an increase in personnel expenses, and also in general and administrative expenses. Further, UBS Group AG reported total net credit loss expenses of $18 million in the quarter against the releases of $28 million witnessed in the year-ago quarter. Business Divisions’ Performance
Global Wealth Management’s first-quarter operating profit before tax was $1.3 billion, down 7% year over year. The decline was due to higher operating expenses, partly offset by higher operating income
Asset Management’s operating profit of $174 million slumped 23% year over year, primarily due to lower performance fees. Also, invested assets decreased 4.7% sequentially to $1.15 trillion. Personal & Corporate Banking reported an operating profit before tax of $428 million, up 10% year over year. The increase was driven by strong business momentum, with higher transaction-based fees, recurring net fees and NII. The Investment Bank unit’s operating profit before tax was $929 million, up substantially from the prior-year quarter’s $412 million, primarily driven by higher operating income, but partly offset by higher operating expenses. Group Functions incurred an operating loss before tax of $112 million in the reported quarter compared with the loss of $139 million witnessed in the year-ago quarter. Strong Capital Position
As of Mar 31, 2022, UBS Group AG's invested assets declined 4.7% to $4.4 trillion from the prior quarter’s level. Risk-weighted assets increased 3.3% to $312 billion from the prior quarter’s level.
Nonetheless, total assets increased 2% to $1.14 trillion from the previous quarter’s level. CET1 capital increased 10.3% to $44.6 billion. UBS Group AG’s return on CET1 capital was 19% as of Mar 31, 2022, compared with 18.2% on Mar 31, 2021. Capital Deployment Activities Encouraging
In the reported quarter, UBS Group AG returned $3.4 billion to its shareholders through share repurchases and dividends. The company repurchased $1.7 billion of common stock and paid the 2021 dividend of 50 cents per share, aggregating to $1.7 billion. Further, the company intends to repurchase a total of around $5 billion of common stock in 2022.
Management projects a 2% rise in costs during 2022 (excluding litigation and foreign exchange).
A cost/income ratio of 70-73% is expected. Profit before tax in Global Wealth Management business is anticipated to grow 10-15%. The segment’s NII is expected to grow 15% in the second quarter sequentially. Further, for 2022, NII is expected to increase by $1 billion year over year, with majority of growth expected in the second half of 2022. Capital guidance remains unchanged. A CET1 capital ratio of around 13% and a CET1 leverage ratio of greater than 3.7% are expected. Management projects 15-18% return on CET1 capital. In 2022, UBS expects to repurchase shares worth $5 billion. Management expects growth rate of 5% and above over the cycle, from net new fee-generating assets for Global Wealth Management segment. Risk weighted assets are expected to be $370 billion by 2024.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
Currently, UBS has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise UBS has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.