UniCredit Shares Get Boost From Raised Distribution Outlook — Update

By Elena Vardon

UniCredit lifted its shareholder distribution outlook as it reported first-quarter profit widely ahead of expectations, sending shares to their highest price in almost 13 years.

The Italian bank on Tuesday said that it expects to reward shareholders with distributions for 2024 ahead of the previous year, for which it paid out 8.61 billion euros ($9.27 billion)--the entirety of its net profit result. Taking into account continuing share buyback programs from 2023, distributions in the calendar year are expected at around EUR10 billion, the group confirmed. Chief Executive Andrea Orcel noted that this figure could be exceeded.

The group also forecasts that its average annual distributions for 2025 and 2026 will be equal or above 2024's, adding that it intends to either deploy or return excess share capital by 2027 at the latest. In February, it introduced an ordinary distribution policy aiming to pay out at least 90% of net profit.

The latest consensus compiled by the company estimates that the Milan-based lender will make EUR8.51 billion in net profit on average for 2024, EUR8.02 billion for 2025 and EUR7.90 billion for 2026.

"It looks clear UniCredit has more optimistic views about the bank's capacity to preserve or even grow earnings beyond 2024 than what we and consensus are currently factoring in," UBS analysts wrote in a note to clients.

The group--which operates in Italy, Germany, Central and Eastern Europe--upgraded its outlook as it posted results for the three months ended March 31. It reported net profit of EUR2.56 billion, beating expectations of EUR2.13 billion and the EUR2.06 billion reported for the same period of 2023. Net profit for the year is now expected to be over EUR8.5 billion, it added, compared with previous guidance of "broadly in line with 2023".

Revenue for the quarter climbed 7.4% on year to EUR6.37 billion, ahead of estimates of EUR5.94 billion. "This was supported by a much improved environment for fees and [assets under management], our focus on clients and product factories resulting in excellent commercial momentum, as well as resilient net interest income", Orcel said.

Net interest income--the difference between what lenders earn from loans and pay for deposits--came in at EUR3.61 billion, 8.5% higher on year but 0.9% lower on quarter. Fees rose 16% compared to the previous quarter to EUR2.10 billion, driven by higher commissions on insurance and investment products, while trading revenue was 65% higher.

As markets expect central banks to start cutting interest rates--which boosted banks' top line in the past couple of years--lenders are focusing on strengthening their fee-generating lines of business. UniCredit's special emphasis on fee acceleration helped offset the expected slowdown in interest income, similarly to larger peer Intesa Sanpaolo which reported results on Friday, but more intensely, UBS analysts noted.

"Whilst revenue targets were not raised, the strong performance points to further upside [to consensus estimates], with slightly higher deposit pass-through more than offset by stronger fees," JP Morgan analysts wrote in a note. UniCredit confirmed its net revenue guidance of EUR22.5 billion for the year.

The stock had risen 3.2% in midday exchanges to EUR35.96, its highest price since August 2011. This pushed its market capitalization past the EUR60 billion mark.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

May 07, 2024 07:38 ET (11:38 GMT)

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