UniCredit Earnings: Guidance Represents Upside Risk to Our Estimates

After growing preprovision profits by nearly 50% year on year for the first nine months of 2023, no-moat UniCredit booked a more pedestrian 8% year-on-year increase for fourth-quarter 2023. The benefit of higher interest rates is clearly in the base now and revenue growth will become a more challenging prospect for UniCredit, especially in an environment where we expect interest rates to decline in second-half 2024. Loan-loss provisions increased sharply in the fourth quarter and this, combined with elevated integration, led to profit before tax declining to EUR 2.3 billion compared with the approximately EUR 3.2 billion run rate UniCredit achieved in the previous two quarters. UniCredit guided that it expects broadly stable net income for 2024, while we anticipate a decline of around 15%. If UniCredit can find a way to offset the impact of lower interest rates and maintain credit quality, it would represent upside risk to our earnings forecast and fair value estimate. We highlight that UniCredit's dividend guidance implies a forward dividend yield of around 10%, augmented by significant share buybacks. Material shareholder returns make UniCredit an attractive option for yield-hungry investors. We maintain our EUR 32 per-share fair value estimate.