Morningstar | UniCredit's 1Q19 Maintains Bullish Fiscal 2019 Guidance
No-moat UniCredit reported net profits of EUR 1.4 billion for the first quarter of 2019, 25% higher than the EUR 1.1 billion it reported for the first quarter of 2018. There were, however, several below-the-line items that distorted the results, and if we look at UniCredit's own disclosure of what it views its operating results, net operating profit was broadly stable. A disappointing 3% decline in revenue was offset by operating costs coming in 4% lower and a 6% decline in loan loss provisions. UniCredit maintained its net attributable income for fiscal 2019 of EUR 4.7 billion, ahead of our estimate of EUR 4.5 billion. We maintain our no-moat rating and our fair value estimate of EUR 15 per share.Considering the sluggish economy and heightened uncertainty, UniCredit would be pleased with the resilient performance from its Italian retail banking business, which contributes 27% of group net income. The business grew net profit by 4% year on year despite a 4% drop in revenue as operating costs and loan loss provisions declined. Pleasingly, credit quality of the latest loan vintages remains sound with limited new non-performing loans formation.
UniCredit announced the disposal of half of its interest in Italian online bank, Fineco. We agree that holding a non-controlling stake in Fineco makes little sense and it is a suboptimal use of capital. Given the good growth prospects of the business and the increasing pressure on traditional banking models we would have liked to see UniCredit take a controlling stake in Fineco. UniCredit however does not have surplus capital to do such a deal. In fact, we believe part of the motivation for the partial disposal of its Fineco holding was for UniCredit to bolster its capital adequacy. While UniCredit's capitalisation compares favourably with most European banks we believe the debt markets are looking for higher surplus buffers from UniCredit and other Italian banks given the uncertain outlook for the Italian economy.
Unicredit is a pan-European commercial banking group based in Italy. Co. is engaged in the provision of in-branch and online corporate and investment banking services, providing customers with access to banks in 14 core markets as well as to an another 18 countries worldwide. Co.'s operations are organized along six business lines: Commercial Banking Italy; CEE Division; CIB; Commercial Banking Germany; Commercial Banking Austria; and Asset Gathering. Co.'s European banking network includes Italy, Germany, Austria, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Romania, Russia, Slovakia, Slovenia, Serbia and Turkey.
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