EUR 850.00 For Business Accounts Only

Morningstar | UBS 1Q 2019: Better Than Expected but Still Disappointing

Narrow-moat UBS reported a net profit of $1.1 billion for the first quarter of 2019, which is 27% lower than the $1.6 billion UBS reported for the first quarter of 2018. Consensus expectations were, however, even lower at $0.9 billion, after exceptionally bearish comments by UBS management in March. It is worthwhile to highlight that the first quarter of 2018 did pose a challenging base. It accounted for 35% of 2018 earnings, the remaining nine months will be a much softer base. We maintain our CHF 20 fair value estimate and our narrow-moat rating.

The all-important wealth management business, which contributes 55% of group revenue, reported net new money inflows of $22 billion, erasing the $8 billion outflows recorded in the final quarter of 2018. This inflow augurs well for fee growth for the rest of the year. The division however recorded a 22% decline in profit before tax year on year, as especially transaction-based income declined sharply with reduced risk appetite leading to lower trading volumes from broking clients.

Investment banking, which contributes 25% of group revenue, was the weakest performer with a 64% decline in profit before tax compared with the first quarter of 2018. For once the foreign exchange, interest rates, and credit trading business was not the culprit; it managed a 9% year-on-year increase in revenue. The traditionally less volatile primary markets and advisory business saw a 48% decline in revenue as global fee pools dried up. Equities trading also had a weak quarter with a 22% revenue drop.

Management is taking a cautious view, guiding single-digit dividend growth and making the targeted $1 billion share buyback program for 2019 dependent on a recovery in the macro environment. Recurring fees in wealth management should benefit from higher invested assets as markets recovered and UBS recorded net new inflows. Management does, however, still believe it has the ability to achieve its ambitious medium-term targets set out at its 2018 investor day although it did indicate that its cost/income target of 72% by 2021 is dependent on an improvement in revenue growth.