Analyst Note| Johann Scholtz, CFA |
Narrow-moat UBS reported net attributable profits of $1.2 billion for the second quarter of 2020, 11% lower than the $1.4 billion it reported for the second quarter of 2019, but comfortably ahead of the $1 billion consensus, collected by UBS itself, that had been pencilled in for the quarter. Revenue growth and especially trading revenue was the main driver of the earnings beat. Impressively, UBS recorded a return on common equity Tier one capital of 15.4% for the first half of 2020, higher than any of its major U.S. bulge bracket investment banking rivals that have reported thus far. We believe that the diversity of UBS' business, geographically and operationally, its relatively low exposure to credit risk and the strength of its ultrahigh-net-worth and family office franchise all contributed to the resilience of its results. Our estimates for fiscal 2020 is starting to look very light and we will increase our earnings estimate meaningfully. Earnings visibility beyond 2020 is, however, low and our estimates further out are unlikely to change; consequently we do not anticipate a material change to our fair value estimate of CHF 13.50/share. We maintain our narrow moat rating.