2024-01-28 10:22:29 ET
Summary
- UBS is the last major Swiss bank after acquiring Credit Suisse for $3 billion in 2023.
- The integration has been costly and has weighed on UBS's Earnings and Return on Equity, but it's still not done.
- If executed well, this acquisition could significantly increase Return on Equity and thus improve shareholder return.
- A clear view on the upside depends on if UBS will grow its Book Value per share and increase earnings, or just pay Dividends and Buybacks with the excess cash flow.
- I deem UBS stock a Hold for now, but ROE and Book Value should be watched closely in the coming quarters to identify further upside.
UBS ( UBS ) is the last big Swiss bank standing. It made headlines last year when it bought Credit Suisse ((CS)), its main rival, for $3 billion to alleviate concerns that CS was on a death spiral. If you didn't follow the news at the time, I'd recommend the following SA articles that also helped me make my mind to be long UBS at the time: by IP Banking Research , Daniel Jones and Cavenagh Research .
After this recent price movement to almost $30 per share I started thinking more about how much further could UBS go. Since the acquisition was announced, the majority of SA Analysts have rated UBS a Hold and my rating will be no different. So why should you bother reading another Hold rating? The main attraction is that I expect to give a detailed deep dive of UBS operations and how it is valued against peers. I'll not be focusing that much on the current quarter earnings, but on how much money will UBS make in the future and if that translates into upside for current shareholders. I'll first compare UBS with its peers and validate why it isn't valued in line with the most appreciated banks in terms of Price to Book Ratio (P/B) despite a solid Return on Equity ((ROE)). Then, I'll move to review the earnings potential of each UBS's segment and how that compares to management expectation. In the end, it will be clear what needs to happen for UBS to deserve a rerating that will deliver upside to investors. In the meantime, I believe UBS is a Hold with good opportunities to keep an eye on....
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UBS Group: Upside Depends On Growing Book Value