Tuesday, 29 July 2014

UBS - reasonable timescale franchise buying opportunity? Yes

UBS has been a surprising underperformer, as shown below, against broader European financial markets year-to-date:

Clearly the company has suffered fines and regulatory challenges but fundamentally it is moving on in a sensible direction.  Globally they are building net inflows (and as already noted this is focused on Asia and ultra high net worth individuals) which thematically is a positive and not going away...

...and the announced wind-down of large elements of the investment bank to focus on the aforementioned wealth and investment management businesses makes huge sense. 
I thought today's numbers read and looked fine even in the expansion in costs at the corporate centre clipped group operating profitability (overall costs were down 7% which is a good effort): 

I talked about valuing UBS on a sum-of-the-parts basis beforehand (link here) talking about:

'...valuing the core wealth management divisions at x12 PBT, other investment management operations at x10 PBT, the continuing investment bank at x6 PBT and deducting central costs'

If I do this then I come out with a value of around CHF66bn or a little above today's price - which makes sense as at the link above I was getting an 'in' price of around CHF17, just below prevailing levels. 

Additionally I note a - slightly complex - creation of a Group holding company which appears to offer some regulatory capital and dividend potential benefits.  What I have always liked about UBS is the high (Swiss-enforced) regulatory capital backing and this should further benefit the situation:

 So overall thoughts?  Reasonable timescale franchise buying opportunity?  Well there is always going to be volatility/uncertainty and 'events' (like the German tax settlement announced today by the company) in financials but I think so. 

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