Credit Suisse (CS) reported net profit of CHF 749 billion for the first quarter of 2019, which is 8% higher than the first quarter of 2018 and 11% higher than consensus expectations. However, the increase was solely the result of a lower tax rate; pretax profit of CHF 1.1 billion was stable compared with the first quarter of 2018. We expect a full-year pretax profit increase of 39%, which may look a bit rich considering the flat first quarter. However, we point out that the first quarter of 2018 contributed 31% of pretax profit and the first half of 2018 accounted for 62% of pretax profit. We maintain our narrow moat rating and fair value estimate and believe the shares are undervalued.
Group revenue declined 4% year over year as primary market activities in the investment bank collapsed; equity underwriting and debt underwriting declined 44% and 27%, respectively, year on year. Management did indicate that there is a substantial pipeline of deals that should support future revenue growth.
Johann Scholtz, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.