Distributive policy

UBS: Raising the Bar on Payout Policy (NYSE: UBS)

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Before the opening bell of the stock exchange, UBS Group AG (New York stock market :NYSE: UBS) released a major update on shareholder compensation ahead of the upcoming quarterly results. Despite market turbulence and after a complex Q2 for the banking environment, the Swiss entity will increase its ordinary dividend per share by 10% over the previous year’s total coupon payment for a payment of $0.55 per share compared to $0.51 paid in 2021. The UBS board of directors intends to ask for the new dividend proposal at the next annual general meeting in 2023. This snapshot below represents the evolution of the UBS dividend from 2018 and we can note that it is still below the pre-COVID-19 level.

Evolution of UBS DPS

Evolution of UBS DPS

Additionally, the Swiss bank headed by CEO Ralph Hamers expects to exceed its $5 billion share buyback target for this year. Indeed, as we can see in the press release: “as of September 9, 2022, UBS has already repurchased USD 4.1 billion of shares”. Thus, the company raises the bar of its shareholder allocation policy and this will positively influence the development of the UBS share price. In pre-market session, UBS is already up 1.6%.

Evolution of the UBS Group AG share price

Evolution of the UBS Group AG share price

Half-year performance and conclusion

In the first half of the year, the UBS Group achieved revenues of $18.29 billion, an increase from the $17.57 billion achieved in the same period of 2021. Net profits also increased , going from 3.83 billion dollars to 4.24 billion dollars, confirming an exceptional result in the capital. demanding level (the CET1 is 18.9%). However, as we have already analyzed, the second quarter alone disappointed analysts’ expectations. On the Q2 release, CEO Hamers said he was confident in UBS “underlying performance which reflects a good result in an environment characterized by lower asset levels, higher volatility and rising interest ratesDuring the Q&A call, the CEO also expressed a positive view on UBS’s franchises in the third quarter, highlighting a $1 billion increase in net interest income on a comparison of year on year. Moreover, despite inflation, the bank is “Quite confident” to achieve its target of 70-73% cost/revenue on a reported basis.

We were already supportive of UBS’s valuation and now we are even more confident with the latest company news. Banking valuations benefit from the ECB rate hike of 75 basis points and with higher remuneration expected, we confirm our purchase target at CHF 22 per share derived from a sustainable return on tangible equity at 14, 5% on average.