Many epithets have been used to describe the emerging Swiss megabank. But one adjective is rarely heard in reference to the new UBS: cheap.
JPMorgan's Kian Abouhossein is a self-confessed UBS fan. Together with his team, the banking analyst recommends buying its shares, raving about an emerging wealth management powerhouse thanks to the forced takeover of Credit Suisse.
In his latest report made available to finews.asia, the financial analyst remains optimistic. After the official merger of the two largest Swiss banks, he did the math and concludes that UBS shares are well on their way to becoming a real bargain.
Outflows Quantified
Although JP Morgan's investment bankers are advising UBS on the takeover, Abouhossein doesn't hide the risks of the transaction and expects a further $150 billion of additional outflows in the core asset management business. He also warns that unexpected write-offs and the handling of the numerous legacy legal cases surrounding Credit Suisse could weigh on the result.
Based on his projections he concludes that investors can buy UBS shares at 20 percent below their intrinsic value, giving them a stake in a financial group that would deliver a double-digit return on equity of 11 percent in 2027. This would be achieved with a revenue mix of 60 percent from private banking, 30 percent from the Swiss business, and only 10 percent from volatile investment banking.
Dumbing Down for Years
If the price-earnings ratio is examined on whether the stock is cheap or expensive, Abouhossein puts it at an adjusted 9.5 times for the bank which he views as an attractive valuation. For this year, he assumes a much more expensive P/E ratio of 17.4.
Whether investors succumb to the lure of the price remains to be seen. Before Colm Kelleher reluctantly took over Credit Suisse, the UBS chairman had done his best to breathe new life into the UBS's share price which has been languishing below or just below the bank's intrinsic value for years.
In order to convince major investors of the stock's potential, he made a tour of Wall Street banks with UBS management. At JP Morgan, the message seems to be getting through.
