Morningstar | UBS 2Q 2019: Solid Consensus Beat
Narrow-moat UBS reported a net profit of $1.4 billion for second-quarter 2019, roughly the same as second-quarter 2018. UBS however comfortably beat consensus expectations, coming in about 30% higher than the $1 billion consensus had forecast for the quarter. For the full year we are 13% ahead of consensus and this solid result gives us greater comfort with our estimates. We believe there will be consensus upgrades on the back of these results. We maintain our CHF 20 fair value estimate and our narrow-moat rating. UBS currently trades at 0.95 times its tangible book value, its lowest level for six years. Given its superior profitability we believe UBS is one of the few European banks that deserves to trade at a premium to its book value. UBS is trading deep into 4-star territory and we view current levels as a good entry point. While UBS is not immune from revenue pressure emanating from lower interest rates, we do believe its sensitivity is meaningfully lower than its European retail banking peers.The important wealth management business, which contributes 55% of group revenue, reported net new money outflows of $1 billion, still up $21 billion for the year. Lower net-interest margins continue to bite in a challenging rate environment.
Investment banking, which contributes 25% of group revenue, recovered from the disastrous first quarter with profits before tax at $440 million--double the first-quarter 2019 result of $221 million but still 23% lower year on year. Both trading units had revenue declines year on year, foreign exchange rates and credit trading pulled back by 7% and equities trading revenue was reduced by 9%. Despite primary markets and advisory fee pools remaining under pressure, the corporate client solutions segment servicing these markets had an 18% increase in revenue.
Management maintained its single-digit dividend growth guidance and the intention remains to buy back $1 billion of shares for the year, with only $300 million executed in the first two quarters. Recurring fees in wealth management should benefit from higher invested assets, with markets recovering from the beginning of the year.
UBS Group is a holding company. Through its subsidiary, UBS, Co. provides financial services including advisory services, underwriting, financing, market making, asset management and brokerage and retail banking. Co.'s operations are organized along five segments: Wealth Management (financial services to high net worth and ultra high net worth individuals as well as private and corporate clients); Wealth Management Americas (advice-based solutions for ultra high net worth, high net worth and core affluent individuals and families); Personal & Corporate Banking (provides financial products and services to private, corporate and institutional clients); Asset Management and Investment Bank.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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