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UBS Group AG Aided by Expansion Strategies Amid Higher Expenses
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UBS Group AG’s (UBS - Free Report) strong capital position, expansion strategies and business restructuring initiatives will continue to aid its financials. However, a rising expense base will likely limit bottom-line growth in the near term.
Tailwinds of UBS Group AG
Over the years, UBS Group AG has fortified its geographic footprint and expanded operations on the back of strategic partnerships and buyouts. These, along with business optimization plans, have been supporting the company’s financials. In June 2023, UBS Group AG completed the acquisition of Credit Suisse (a regulatory-assisted deal). This move is expected to enhance capabilities in wealth and asset management as well as aid in growing its capital-light businesses.
Pursuant to its business restructuring, the company is likely to wind down its Non-Core and Legacy portfolio, releasing more than $6 billion of capital by 2026-end. Through these efforts, the company aims to achieve gross cost reductions of around $13 billion by 2026-end compared with 2022 levels. Since the end of 2022, the company achieved $6 billion or around 45% of total targeted cost savings. A solid balance sheet position allows UBS Group AG to undertake beneficial strategic acquisitions.
UBS Group AG enjoys a strong capital position. As of June 30, 2024, the common equity tier (CET) 1 capital ratio was 14.9% and the CET1 leverage ratio was 4.9%, both above management’s guidance of around 14% and more than 4%, respectively. In fact, management forecasts to achieve an underlying return on CET1 capital ratio of approximately 15% and 18% by 2026-end and 2028-end, respectively.
UBS is making efforts to become more digital and data-driven to provide clients with digital-first services. The company has established a leveling-up strategy based on five key pillars through Agile@UBS, quarterly business reviews and digital roadmaps, modern technology, automation and engineering excellence. It has also introduced an Artificial Intelligence, Data and Analytics center of expertise. These initiatives will help in delivering a client experience that is personalized, relevant, on-time and seamless, thereby providing the company a competitive edge.
Headwinds of UBS Group AG
The company’s escalating expense base is concerning as it exposes the company to operational risks. The metric witnessed a CAGR of 17% in the three years (ended 2023), with the rising trend continuing in the first half of 2024. Though the company expects to achieve gross cost reductions of around $13 billion by 2026-end compared with 2022 levels, increased investments in technology and high inflation are likely to increase expenses. This is anticipated to impede bottom-line growth in the near term.
UBS Group AG’s capital distribution activities keep us apprehensive. Although the company targets to have a progressive dividend policy and to increase share repurchases in 2026 compared with 2022 levels, its fluctuating quarterly performance and an unfavorable debt/equity ratio compared with the industry average indicate that such capital distributions might not be sustainable.
Shares of this Zacks Rank #3 (Hold) company have lost 3.1% against its industry’s 11.4% growth in the year-to-date period.
The Zacks Consensus Estimate for JHG’s current-year earnings has been revised nearly 1% upward to $3.23 per share in the past 30 days. The company’s shares have risen 24.4% year to date.
The Zacks Consensus Estimate for HLNE’s current-year earnings has been revised 8% upward to $4.88 per share in the past 30 days. The company’s shares have risen 32.1% year to date.
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UBS Group AG Aided by Expansion Strategies Amid Higher Expenses
UBS Group AG’s (UBS - Free Report) strong capital position, expansion strategies and business restructuring initiatives will continue to aid its financials. However, a rising expense base will likely limit bottom-line growth in the near term.
Tailwinds of UBS Group AG
Over the years, UBS Group AG has fortified its geographic footprint and expanded operations on the back of strategic partnerships and buyouts. These, along with business optimization plans, have been supporting the company’s financials. In June 2023, UBS Group AG completed the acquisition of Credit Suisse (a regulatory-assisted deal). This move is expected to enhance capabilities in wealth and asset management as well as aid in growing its capital-light businesses.
Pursuant to its business restructuring, the company is likely to wind down its Non-Core and Legacy portfolio, releasing more than $6 billion of capital by 2026-end. Through these efforts, the company aims to achieve gross cost reductions of around $13 billion by 2026-end compared with 2022 levels. Since the end of 2022, the company achieved $6 billion or around 45% of total targeted cost savings. A solid balance sheet position allows UBS Group AG to undertake beneficial strategic acquisitions.
UBS Group AG enjoys a strong capital position. As of June 30, 2024, the common equity tier (CET) 1 capital ratio was 14.9% and the CET1 leverage ratio was 4.9%, both above management’s guidance of around 14% and more than 4%, respectively. In fact, management forecasts to achieve an underlying return on CET1 capital ratio of approximately 15% and 18% by 2026-end and 2028-end, respectively.
UBS is making efforts to become more digital and data-driven to provide clients with digital-first services. The company has established a leveling-up strategy based on five key pillars through Agile@UBS, quarterly business reviews and digital roadmaps, modern technology, automation and engineering excellence. It has also introduced an Artificial Intelligence, Data and Analytics center of expertise. These initiatives will help in delivering a client experience that is personalized, relevant, on-time and seamless, thereby providing the company a competitive edge.
Headwinds of UBS Group AG
The company’s escalating expense base is concerning as it exposes the company to operational risks. The metric witnessed a CAGR of 17% in the three years (ended 2023), with the rising trend continuing in the first half of 2024. Though the company expects to achieve gross cost reductions of around $13 billion by 2026-end compared with 2022 levels, increased investments in technology and high inflation are likely to increase expenses. This is anticipated to impede bottom-line growth in the near term.
UBS Group AG’s capital distribution activities keep us apprehensive. Although the company targets to have a progressive dividend policy and to increase share repurchases in 2026 compared with 2022 levels, its fluctuating quarterly performance and an unfavorable debt/equity ratio compared with the industry average indicate that such capital distributions might not be sustainable.
Shares of this Zacks Rank #3 (Hold) company have lost 3.1% against its industry’s 11.4% growth in the year-to-date period.
Finance Stocks Worth a Look
Some better-ranked stocks in the finance sector are Janus Henderson Group plc (JHG - Free Report) and Hamilton Lane Incorporated (HLNE - Free Report) . At present, JHG sports a Zacks Rank #1 (Strong Buy) and HLNE carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for JHG’s current-year earnings has been revised nearly 1% upward to $3.23 per share in the past 30 days. The company’s shares have risen 24.4% year to date.
The Zacks Consensus Estimate for HLNE’s current-year earnings has been revised 8% upward to $4.88 per share in the past 30 days. The company’s shares have risen 32.1% year to date.