UBS’s share price: What to expect in Q3 earnings

UBS's [UBS] share price has proven surprisingly resilient this year. Unlike other banking stocks across Europe, UBS’s share price has managed to regain most of the losses seen at the height of the pandemic, climbing 45% since 23 March. 

UBS’s share price is now down around 9% since the start of the year, better than rival Credit Suisse's 23% decline, but UBS’s share price is not immune from renewed fears of a second-wave of the pandemic, with the stock seeing a sell-off mid-September.

Upcoming third-quarter results will show how UBS has continued to fare during the pandemic, and provide some insight on how it is adapting its strategy for the months ahead. So, will it be good news for UBS’s share price?

When is UBS announcing earnings?

20 October

What happened last quarter?

Last quarter UBS saw net profits at $1.23bn, down 11% from the $1.4bn posted last year, but still beating analyst forecasts of $973m. The results saw UBS’s share price stutter briefly in July, but they did not have any lasting negative impact. 

While UBS hauled in a profit, it warned of an uncertain 2020 as the effects of the coronavirus continue to weigh on the global economy, with credit losses totalling $272m for the quarter. This brought credit losses to $540m for the first six months of the year. 

While UBS restrained from issuing guidance at the time, it said its intention was "to pay out excess capital and maintain the overall capital returns to shareholders consistent with previous levels.” 

So, what else is affecting UBS’s share price?

Exodus at UBS Australia

UBS’s share price is contending with more than just macroeconomic conditions, however. Over in its Australia business, the bank has seen an exodus of top-deal makers to Barrenjoey Capital, a new venture set up by UBS alumni.

In an effort to stop people jumping ship, UBS Australia co-head Anthony Sweetman will disclose to his top performers a step-up in bonuses for 2020 ahead of their usual February disclosure date, according to The Australian Financial Review's Street Talk column. Early disclosure will not translate to early payment, however, with the bankers still having to wait until March to get the money.

Street Talk reports that this hasn't been enough to persuade some of UBS's top-brass to stay, with managing director Sam Kyprianou resigning to join Barrenjoey Capital as a founding partner. Kyprianou specialised in infrastructure and utilities, an area that Street Talk says has been a “fruitful hunting ground in Australia”.  

Change at the top

One big change will be ING CEO Ralph Hamers taking over from Sergio Ermotti, UBS’s current CEO. According to Reuters Germany, UBS board chairman Axel Weber said he expects Hamers to lead on "digitization of the entire operational banking business" as the bank adapts to operating in the pandemic. For Ermotti's final earnings report at UBS, it will be interesting to hear the outgoing CEO’s thoughts on the future of banking in the era of COVID-19.

What to look out for in UBS’s earnings

Analysts are expecting earnings of $0.24 a share, down from the $0.31 seen in the same period last year. Revenue is pegged at $7.69bn, up 8.50% from the $7.09bn seen last year.

Among the metrics to look out for is credit losses. These proved a sizable dent in last quarter’s earnings, with the bank warning that they would continue in the second half of the year. Whether or not these losses are as bad as the first half could determine which way UBS’s share price goes post-earnings. 

"Given the continued uncertainty related to the pandemic, it is reasonable to expect elevated Group credit loss expenses in the second half of 2020, but below those seen in the first half of the year," UBS said in a statement for last quarter’s earnings.

For income seeking investors, news of the dividend will be key — UBS currently has a 3.14% forward yield — as will an update on whether the bank will restart its shares repurchasing scheme in the fourth quarter.

Is an earnings beat on the cards? UBS has managed to beat analyst expectations four quarters on the trot. Last quarter the bank posted earnings of $0.33 per share, well ahead of the $0.22 analysts were expecting.

Among the analysts tracking the stock on Yahoo Finance, UBS’s share price carries an average $14.27 price target. Hitting this would see a 22.8% upside on the current price (as of 16 October’s close).