UBS: Increase Fair Value by 22% to CHF 27.50 per share To Include Credit Suisse

The 22% increase in our fair value estimate for UBS UBSG to CHF 27.50 is primarily due to the takeover of Credit Suisse, implying that we place a value of around CHF 19 billion on the acquired Credit Suisse operations. To contextualize our valuation, in February 2023, before the final collapse of Credit Suisse, the market still valued it at CHF 13 billion. As recently as March 2021, Credit Suisse had a market value of CHF 32 billion. We acknowledge that it will be hard, if not impossible, for UBS to reverse Credit Suisse’s recent revenue losses. UBS is, however, much better placed than Credit Suisse to drastically reduce the loss-making, volatile, and capital-hungry investment banking operations and restore the profitability of Credit Suisse’s wealth management operations.

We believe that cost savings instead of revenue growth will be the primary driver of UBS’ earnings growth for the foreseeable future. We believe the takeover will be highly earnings accretive in the longer term. Furthermore, we estimate that once the integration of Credit Suisse is complete, UBS will book EPS of $3.92 per share in 2027, compared with the $2.25 per share UBS reported on its own in 2022. The integration of Credit Suisse will highly distort earnings for the next three to four years. After completing the integration, we estimate that UBS can generate a 14% midcycle return on tangible equity, which aligns with UBS’ recent profitability before the takeover. We expect that the acquired Credit Suisse operations will contribute around 25% of midcycle earnings for UBS.