UBS logo is seen on the office building in Krakow, Poland on April 21, 2021. … [+]
UBS (NYSE: UBS) is scheduled to report its fiscal Q1 2021 results on Tuesday, April 27. We expect UBS to top the consensus estimates for revenues and earnings. The bank has outperformed the consensus estimates in each of the last three quarters, primarily due to strong results in its investment bank division. The same was evident in its full-year 2020 results, where total operating income grew 12% y-o-y as compared to the CAGR of 0.2% over 2016-2019. The investment bank division includes the sales & trading and investment banking businesses, which have seen tremendous growth in the last year. Further, UBS’ wealth management and asset management segments also delivered positive growth in the year, mainly driven by growth in Assets under Management (AuM). We expect the same trend to drive the first-quarter FY2021 results as well.
Our forecast indicates that UBS’ valuation is around $17 per share, which is 8% above the current market price of around $15. Look at our interactive dashboard analysis on UBS’ pre-earnings: What To Expect in Q1? for more details.
(1) Revenues expected to edge pass the consensus estimates in Q1
Trefis estimates UBS’ fiscal Q1 2021 revenues to be around $8.92 billion, marginally above the $8.80 billion consensus estimate. UBS delivered a robust performance in 2020 with total operating income improving by 12% y-o-y to $32.4 billion. It was mainly driven by a 27% y-o-y growth in the investment bank division, due to a significant jump in trading volumes and higher underwriting deal volumes. This growth was followed by a 4% y-o-y increase in the wealth management business, which contributes roughly 55% of the total revenues, and a 53% jump in the asset management segment (less than 10% revenue share). Both the wealth and asset management businesses benefited from the increase in invested assets on a year-on-year basis – 14% and 21% respectively. That said, the growth rate of the retail & corporate banking segment suffered due to the lower interest rate environment. We expect the same momentum to continue in the first quarter of FY2021.
The sales & trading and investment banking revenues are likely to normalize in the subsequent quarters, with improvement in the economy. This will likely hurt UBS’ top-line. However, continued growth in the wealth management segment is likely to offset this impact to a large extent. Further, improvement in consumer spending levels will likely benefit the personal & corporate banking unit, although the lower interest rates are likely to stay for some time. Overall, the bank’s revenues are likely to remain around $32 billion in FY2021. Our dashboard on UBS revenues offers more details on the company’s segments.
2) EPS likely to beat the consensus estimates
UBS’ Q1 2021 adjusted earnings per share is expected to be $0.56 per Trefis analysis, almost 8% above the consensus estimate of $0.52. The bank’s profitability figures saw a sharp rise in 2020, with its adjusted net income increasing by 52% y-o-y to $6.6 billion. This improved the EPS figure from $1.14 to $1.77. It could be primarily attributed to higher revenues and improvement in operating margin from 19.3% to 25.2% in the year. On the flip side, the positive growth was somewhat offset by the increase in provision for loan losses from $78 million to $694 million. The provision figure has seen some decrease over the last two quarters on a sequential basis, suggesting some improvement in the loan default risk. We expect the same trend to continue in the FY2021 Q1 results.
Although the adjusted net income margin rose from 14.9% to 20.2% in 2020, we expect it to remain somewhere around 17% in FY2021. The drop is likely to be driven by higher compensation costs and general & administrative expenses. Altogether, the bank is likely to report an EPS of around $1.48 in FY2021.
(3) Stock price estimate 8% more than the current market price
Going by our UBS’ valuation, with an EPS estimate of around $1.48 and a P/E multiple of just above 11x in fiscal 2021, this translates into a price of $17, which is 8% above the current market price of around $15.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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