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UBS AG (UBS) Down 9.4% Since Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for UBS AG (UBS - Free Report) . Shares have lost about 9.4% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 catalysts.
UBS Group's Q4 Pre-tax Earnings Up on Lower Costs
UBS Group AG reported fourth-quarter 2016 pre-tax operating profit of CHF 1.11 billion ($1.11 billion) on an adjusted basis, up 46.6% from the prior-year quarter.
While results reflected increase in net trading income, they recorded a decline in net fee and commission income. Notably, the quarter benefited from the company’s consistent focus on expense management.
However, the Swiss banking giant’s net profit attributable to shareholders of CHF 738 million ($737.6 million) plunged 22.2% year over year. Results included provisions for litigation, regulatory and similar matters of CHF 162 million, along with restructuring expenses of CHF 372 million.
The company recorded improved profitability in its Investment Bank, Wealth Management Americas, Asset Management and Wealth Management units. However, profit at Personal & Corporate banking wing remained stable.
Continued Cost Control Reflected, Operating Income Escalates
Excluding the significant items, UBS Group AG’s adjusted operating income increased 4% from the prior-year quarter to CHF 7.06 billion ($7.06 billion).
Adjusted operating expenses were down 4.9% year over year to CHF 5.8 billion ($5.8 billion). Expenses included provisions for litigation, regulatory and similar matters of CHF 162 million ($161.9 million), down 55.6% year over year. Notably, as of Dec 2016, UBS Group AG achieved net cost savings of CHF 1.6 billion and remains on track to achieve CHF 2.1 billion in net cost reductions, by the end of 2017.
Business Division Performance
Wealth Management Americas division’s adjusted operating profit before tax jumped substantially from the prior-year quarter figure to CHF 358 million ($357.8 million). Notably, net new money growth in the quarter was negative 0.5% compared with positive 6.8% in the year-ago quarter.
The Asset Management unit’s adjusted operating profit improved nearly 2% year over year to CHF 156 million ($155.9 million) in the quarter.
The company’s Investment Bank unit’s adjusted operating profit before tax came in at CHF 344 million ($343.8 million), up 54% from the prior-year quarter. Increased debt and equity capital market revenues, advisory revenues and higher revenues in equities revenues were partially offset by lower revenues from foreign exchange, rates and credit.
The Wealth Management division’s adjusted operating profit before tax inched up1% year over year to CHF 511 million ($510.7 million) in the quarter. However, net new money outflows in emerging markets and Europe, partly offset by inflows in Switzerland and Asia Pacific, resulted in annualized net new money growth rate of negative 1.7% compared with negative 1.5% in the prior-year quarter.
Personal & Corporate banking division’s adjusted operating profit before tax was stable, year over year, at CHF 395 million ($394.8 million).
Corporate Center reported adjusted operating loss before tax of CHF 662 million ($661.7 million) compared with a loss of CHF 586 million in the year-ago quarter.
Capital Position
As of Dec 31, 2016, UBS AG's invested assets were CHF 2.82 trillion ($2.77 trillion), up4.8% year over year. Total assets were CHF 935.02 billion ($917.5 billion), decreasing around 1% year over year.
UBS Group’s phase-in BIS Basel III common equity tier (CET) 1 ratio was 13.8% as of Dec 31, 2016, compared with 14.5% in the prior-year quarter. Further, phase-in BIS Basel III CET 1 capital dipped 6.4% year over year to CHF 37.8 billion ($37.1 billion) as of Dec 31, 2016. Fully applied risk-weighted assets climbed 7.3% year over year to CHF 222.7 billion ($215.8 billion).
Outlook
Though management remained concerned about geopolitical tensions and underlying macroeconomic uncertainties, which have been contributing to client risk aversion and low transaction volumes; improving investors’ confidence in the U.S. is expected to benefit the bank’s wealth management business. The company also highlighted several concerns, including headwinds from negative interest rates. Moreover, the proposed changes to Swiss bank capital standards and global regulatory framework in Switzerland, will lead to higher capital requirements and expenses. However, amid a challenging operating environment, the company remains committed to the execution of its strategies.
UBS Group launched a series of new revenue-related initiatives and continued to invest in business. On the back of these initiatives, along with the seasonal uptick, management estimates higher client activity in first-quarter 2017. It also expects net interest income tailwinds from rising interest rates to help mitigate increased funding cost.
Management projects wealth management's net new money growth rate to remain around the lower end of 3–5% target range for 2017.
Management expects CHF100 million decline in first-quarter 2017 in net interest income as compared with 2016. In addition, a substantial increase in funding costs, related to achieving TLAC requirements is foreseen. For 2017, management expects funding costs for the Group to increase by over CHF100 million, compared to 2016.
Financial Targets
For the Group, UBS targets adjusted return on tangible equity (RoTE) of over 15% and adjusted cost to income ratio of 60–70% to be achieved in a ‘normalized environment.’ Aggregate net cost-reduction target is set at CHF 2.1 billion by year-end 2017.
In the short to medium term, RWAs for the Group are projected to be around CHF 250 billion primarily due to regulatory inflation, while Group BIS Basel III leverage ratio denominator (LRD) is anticipated to be nearly CHF 950 billion.
For 2016 and upcoming years, Basel III fully applied CET1 ratio target is set at 13% and 10% post-stress.
Business Divisions’ Outlook
Wealth Management: Net new money growth is expected in the range of 3–5% and adjusted Cost/Income Ratio in the range of 55–65%.
Wealth Management Americas: Net new money growth is expected in the range of 2–4%, and adjusted Cost/Income ratio in the range of 75–85%.
On a combined basis, annual adjusted pre-tax profit growth for the wealth mangement units is expected in the range of 10–15%.
Personal & Corporate Banking: Net new business volume growth for retail business is expected in the range of 1–4%, net interest margin in the 140–180 bps range and adjusted Cost/Income Ratio in the range of 50–60%.
Asset Management: Net new money growth excluding money market flows is expected in the range of 3–5% and adjusted Cost/Income Ratio in the range of 60–70%. Further, adjusted profit before tax is expected at CHF 1 billion in the medium term.
Investment Bank: Annual pre-tax return on attributed equity is expected to be greater than 15%. Adjusted Cost/Income ratio is expected in the range of 70–80%. In the short to medium term, RWA limit is estimated to be around CHF 85 billion and BIS Basel III LRD is expected to be around CHF 325 billion.
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.
At this time, UBS AG's stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with a 'A'. The stock was allocated also a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy..
Overall, the stock has an aggregte VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable solely for momentum investors.
Outlook
The stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.
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UBS AG (UBS) Down 9.4% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for UBS AG (UBS - Free Report) . Shares have lost about 9.4% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 catalysts.
UBS Group's Q4 Pre-tax Earnings Up on Lower Costs
UBS Group AG reported fourth-quarter 2016 pre-tax operating profit of CHF 1.11 billion ($1.11 billion) on an adjusted basis, up 46.6% from the prior-year quarter.
While results reflected increase in net trading income, they recorded a decline in net fee and commission income. Notably, the quarter benefited from the company’s consistent focus on expense management.
However, the Swiss banking giant’s net profit attributable to shareholders of CHF 738 million ($737.6 million) plunged 22.2% year over year. Results included provisions for litigation, regulatory and similar matters of CHF 162 million, along with restructuring expenses of CHF 372 million.
The company recorded improved profitability in its Investment Bank, Wealth Management Americas, Asset Management and Wealth Management units. However, profit at Personal & Corporate banking wing remained stable.
Continued Cost Control Reflected, Operating Income Escalates
Excluding the significant items, UBS Group AG’s adjusted operating income increased 4% from the prior-year quarter to CHF 7.06 billion ($7.06 billion).
Adjusted operating expenses were down 4.9% year over year to CHF 5.8 billion ($5.8 billion). Expenses included provisions for litigation, regulatory and similar matters of CHF 162 million ($161.9 million), down 55.6% year over year. Notably, as of Dec 2016, UBS Group AG achieved net cost savings of CHF 1.6 billion and remains on track to achieve CHF 2.1 billion in net cost reductions, by the end of 2017.
Business Division Performance
Wealth Management Americas division’s adjusted operating profit before tax jumped substantially from the prior-year quarter figure to CHF 358 million ($357.8 million). Notably, net new money growth in the quarter was negative 0.5% compared with positive 6.8% in the year-ago quarter.
The Asset Management unit’s adjusted operating profit improved nearly 2% year over year to CHF 156 million ($155.9 million) in the quarter.
The company’s Investment Bank unit’s adjusted operating profit before tax came in at CHF 344 million ($343.8 million), up 54% from the prior-year quarter. Increased debt and equity capital market revenues, advisory revenues and higher revenues in equities revenues were partially offset by lower revenues from foreign exchange, rates and credit.
The Wealth Management division’s adjusted operating profit before tax inched up1% year over year to CHF 511 million ($510.7 million) in the quarter. However, net new money outflows in emerging markets and Europe, partly offset by inflows in Switzerland and Asia Pacific, resulted in annualized net new money growth rate of negative 1.7% compared with negative 1.5% in the prior-year quarter.
Personal & Corporate banking division’s adjusted operating profit before tax was stable, year over year, at CHF 395 million ($394.8 million).
Corporate Center reported adjusted operating loss before tax of CHF 662 million ($661.7 million) compared with a loss of CHF 586 million in the year-ago quarter.
Capital Position
As of Dec 31, 2016, UBS AG's invested assets were CHF 2.82 trillion ($2.77 trillion), up4.8% year over year. Total assets were CHF 935.02 billion ($917.5 billion), decreasing around 1% year over year.
UBS Group’s phase-in BIS Basel III common equity tier (CET) 1 ratio was 13.8% as of Dec 31, 2016, compared with 14.5% in the prior-year quarter. Further, phase-in BIS Basel III CET 1 capital dipped 6.4% year over year to CHF 37.8 billion ($37.1 billion) as of Dec 31, 2016. Fully applied risk-weighted assets climbed 7.3% year over year to CHF 222.7 billion ($215.8 billion).
Outlook
Though management remained concerned about geopolitical tensions and underlying macroeconomic uncertainties, which have been contributing to client risk aversion and low transaction volumes; improving investors’ confidence in the U.S. is expected to benefit the bank’s wealth management business. The company also highlighted several concerns, including headwinds from negative interest rates. Moreover, the proposed changes to Swiss bank capital standards and global regulatory framework in Switzerland, will lead to higher capital requirements and expenses. However, amid a challenging operating environment, the company remains committed to the execution of its strategies.
UBS Group launched a series of new revenue-related initiatives and continued to invest in business. On the back of these initiatives, along with the seasonal uptick, management estimates higher client activity in first-quarter 2017. It also expects net interest income tailwinds from rising interest rates to help mitigate increased funding cost.
Management projects wealth management's net new money growth rate to remain around the lower end of 3–5% target range for 2017.
Management expects CHF100 million decline in first-quarter 2017 in net interest income as compared with 2016. In addition, a substantial increase in funding costs, related to achieving TLAC requirements is foreseen. For 2017, management expects funding costs for the Group to increase by over CHF100 million, compared to 2016.
Financial Targets
For the Group, UBS targets adjusted return on tangible equity (RoTE) of over 15% and adjusted cost to income ratio of 60–70% to be achieved in a ‘normalized environment.’ Aggregate net cost-reduction target is set at CHF 2.1 billion by year-end 2017.
In the short to medium term, RWAs for the Group are projected to be around CHF 250 billion primarily due to regulatory inflation, while Group BIS Basel III leverage ratio denominator (LRD) is anticipated to be nearly CHF 950 billion.
For 2016 and upcoming years, Basel III fully applied CET1 ratio target is set at 13% and 10% post-stress.
Business Divisions’ Outlook
Wealth Management: Net new money growth is expected in the range of 3–5% and adjusted Cost/Income Ratio in the range of 55–65%.
Wealth Management Americas: Net new money growth is expected in the range of 2–4%, and adjusted Cost/Income ratio in the range of 75–85%.
On a combined basis, annual adjusted pre-tax profit growth for the wealth mangement units is expected in the range of 10–15%.
Personal & Corporate Banking: Net new business volume growth for retail business is expected in the range of 1–4%, net interest margin in the 140–180 bps range and adjusted Cost/Income Ratio in the range of 50–60%.
Asset Management: Net new money growth excluding money market flows is expected in the range of 3–5% and adjusted Cost/Income Ratio in the range of 60–70%. Further, adjusted profit before tax is expected at CHF 1 billion in the medium term.
Investment Bank: Annual pre-tax return on attributed equity is expected to be greater than 15%. Adjusted Cost/Income ratio is expected in the range of 70–80%. In the short to medium term, RWA limit is estimated to be around CHF 85 billion and BIS Basel III LRD is expected to be around CHF 325 billion.
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.
UBS AG Price and Consensus
UBS AG Price and Consensus | UBS AG Quote
VGM Scores
At this time, UBS AG's stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with a 'A'. The stock was allocated also a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy..
Overall, the stock has an aggregte VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable solely for momentum investors.
Outlook
The stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.