UNCRY - UniCredit: Solid Beats Buy Confirmed

Summary

• UniCredit saw a 2022 profit of over €4.8 billion versus the €4 billion previously indicated.
• The company has a solid capital position with a CET1 ratio of 15.41%.
• We expect upwards earning revision from Wall Street analysts. Our buy rating is confirmed.

We recently published UniCredit's (UNCFF) Q3 expectations and we hope you get on board with us. The Italian bank recorded a broad-based beat across its main financial ratio and is currently up by more than 3% at the stock price level. This is the seventh consecutive quarter of record growth and the bank raised its 2022 forecast outlook. To sum up, UniCredit closed the three months July-September with a net profit, excluding Russia, of €1.3 billion, down by 9% versus the previous quarter and up by more than 30% on a yearly basis. Since our supportive buy rating , UniCredit has clearly outperformed the overall market.

Source: Mare Evidence Lab's previous publication

Q3 results analysis

Looking at the Q3 release , excluding the Russian impact, net revenues stood at €4.2 billion (up 6.8% year-on-year and down 2.4% quarter-on-quarter). Moreover, if we exclude the one-off negative impact linked to TLTRO III, the group's total sales would have reached €4.6 billion (up 12% on a yearly basis). UniCredit's CEO was not only positive on the favorable interest rate environment but also for the company's cost discipline and operational excellence.

Source: UniCredit Q3 results presentation

All this, supported by the significant improvement in the company's capital efficiency and a lower risk cost, has led UniCredit to improve its guidance for the full year and now expects to close 2022 accounts with top-line sales of more than €17.4 billion and a clean net profit at almost €4.8 billion.

UniCredit's CET1 ratio stood at 15.41% and is down 32 basis points on a quarterly basis. The CET1 development includes a capital reduction due to the second share buyback tranche, adverse regulatory framework and dividend accruals. Despite that, thanks to the solid cash generation, CET1 impact was limited and remains at a very high level (compared to EU peers).

Conclusion and Valuation

There are three additional key takeaways from the quarter that support our assumptions:

1. UniCredit has further reduced its Russian exposure and as already mentioned , we like the fact that the Italian bank will not give it away;
2. UniCredit, once again, reaffirmed its supportive shareholder capital distribution policy; once the buyback will be completed, the company's total repurchase will have a total value of almost €4 billion, and given the positive momentum, the CEO already emphasized that dividend distribution should match 2021 numbers. Again, this is supportive of our previous analysis on " UniCredit Could Return Its Entire Capitalisation In 4 Years ";
3. UniCredit's strategic plan is unlocking more value than M&A. This was a brief comment on Bloomberg TV on questions related to a potential acquisition of MPS. The bank has M&A optionality and our internal team foresees inorganic growth not in Italy but in German territory.

Our Q3 expectations were met. 2022 guidance was increased. All our additional points were positively covered. The bank is still trading at a lower tangible equity valuation. Therefore, we confirm our buy rating at €13 per share .

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