UBS Offers Hidden Value

 | May 06, 2013 | 10:30 AM EDT  | Comments
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UBS (UBS), one of the most troubled banks during the financial crises, has found its footing again. By going back to its crown jewel, wealth management, as its earnings power, the bank has lured investors back; its share price is up more than 45% in the past year and more than 14% year to date.

Fundamentals

Overall, the most recent quarter came in very strong, with a positive outlook and guidance going forward. Its key business did extremely well and its core business in wealth management and its integration with the investment bank is coming along well.

Digging into the numbers, it continues to have a very strong presence within the equities cash business as it continues to hold the top ranking globally. Within the rates, foreign exchange and credit business, business was very strong as it jumped to No. 2 globally, led by the strong rates and forex groups. Perhaps the strongest division in the quarter was the corporate bank, as equity capital markets led the way with a 152% gain, debt capital markets rose 17%, and advisory gained 37%. Operating income at the troubled investment bank was up more than 74% and new synergies in the wealth management unit came along as well. Speaking of wealth management, UBS continues to hold its global footing as one of the top wealth managers in the world, recording more than $9 billion of net new flows for the quarter. Overall, the bank reduced its risk-weighted assets by 35%.

On the fundamental side, the restructuring is going very well. Wealth management leading the way means UBS will return to being a boring bank with slow and steady growth but with some risk-weighted assets that can provide a spark, but in a risk-managed way.

Technicals

Looking at the technicals, UBS has crossed above the cloud and has been confirmed by the dark blue lagging line that it has reached the bullish zone. Forward-looking guidance from the investor sentiment suggests a positive outlook as the cloud starts to get bullish. Positive volume has been picking up, as well as insider buying.

Source: Updata

Source: Updata

UBS has moved up nicely since its latest earnings beat and positive outlook on its wealth management business, which will lead most of its earnings ahead. It won't have the same luster of high-powered earnings as it once did; it will be slow, boring and steady growth for investors, hence, a gradual but less volatile share price increase, assuming no other negative surprises. Looking at the point-and-figure charts, we see the next target of $19.75 is not far away, and with the equity market as a whole slugging higher and UBS becoming one of the safer and non-volatile financials to own, we assume it will not have much trouble getting there and possibly further. Shares ended Friday's session at $17.85.

Source: Updata

Source: Updata

Conclusion

Looking at UBS from a fundamental view, with all the positive changes, and a technical view, indicating it is once again bullish by investor sentiment, a good picture emerges. From being one of the most troubled banks in the most troubled industries to being a steady earner of profit only looks good for UBS.

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