Just six months after mounting an emergency rescue of stricken rival Credit Suisse, UBS Group AG is poised for its best quarterly share-price gain in 14 years. And most analysts reckon there’s more to come.
Shares in the Zurich-based lender have jumped 25% in the third quarter, the steepest advance since the same period of 2009. The gains have been accompanied by a slew of increased price targets, which imply the stock has a further 13% of upside in the coming year. That’s a contrast with the turbulence seen in March, when UBS was tasked with taking over its troubled former rival Credit Suisse.
“Sentiment has clearly improved, with fears related to potential risks taken on with the deal receding,” Vontobel analyst Andreas Venditti said in emailed comments. That’s even after Wednesday’s news that the US Department of Justice is stepping up its probe over suspected compliance failures that allowed Russian clients to evade sanctions.
Analyst optimism is based around rapid momentum in integrating Credit Suisse assets, surging inflows into the wealth division and the potential resumption of share buybacks. UBS Chief Executive Officer Sergio Ermotti said this week he’s seeing “good momentum” in regaining funds clients had pulled from Credit Suisse.
“Investors appreciate the pace of progress,” Venditti said.
UBS shares have risen 33% year-to-date, far outstripping gains on the pan-European Stoxx benchmark’s banking subindex. The rally has nailed down the Zurich-based lender’s position as Europe’s second-largest lender with a market value of about $86 billion.
A sign that Credit Suisse’s integration was on track came in August when UBS ended a $10 billion safety net agreed with Swiss authorities to cover potential loses from the rescue. And in another boost for the bank, Norway’s wealth fund disclosed this month that it had increased its stake to 5%.
Meanwhile, second-quarter underlying profit for the combined UBS-Credit Suisse business came in at $1.1 billion, while its wealth-management business recorded $16 billion in client inflows over the second quarter, the highest for the period in more than a decade.
The result prompted Goldman Sachs Group Inc. analysts to raise their price target to 35 Swiss francs, implying roughly 50% upside in the next 12 months from current levels around 23 francs. Upcoming quarterly results could prove the catalyst for further gains, the analysts wrote, while predicting a resumption of share repurchases in 2025, a year earlier than they had previously expected.
Several other brokers, including Berenberg, Citigroup Inc., Keefe Bruyette & Woods and HSBC Holdings Plc, have also lifted their price targets in the past month. In total, 15 of the 24 analysts who cover UBS have done so, according to data compiled by Bloomberg.
“The integration of Credit Suisse can generate material strategic benefits, which do not appear to be captured in UBS’s share price,” Berenberg analyst Peter Richardson wrote in a note last week.
Author: Macarena Muñoz and Allegra Catelli