Everyone’s crazy about the UniCredit stock (UCG), the Italian bank that continues to surprise the markets thanks to the strategy launched by its CEO Andrea Orcel.
The title of Piazza Gae Aulenti today puts the brakes on, after having shot up to around +10% on the eve following the publication of the quarterly report referring to the last three months of 2023 and the entire year.
The shares then closed the session on the Milan stock exchange with a rally of 8.1%, just below the 29 euro threshold which they had exceeded yesterday. That rain of buys led UniCredit to score another important milestone. The bank’s market capitalization has returned to 50 billion euros, for the first time since the collapse of Lehman Brothers.
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UniCredit: rain of buys on the stock with rain of dividends. New surprises from Orcel
Today the fever for UniCredit shares goes down but YTD (and beyond) the performance of the stock continues to confirm itself as stellar, with shareholders anticipating a new shower of dividends.
The markets reward confidence in the solidity of the bank confirmed by CEO Orcel, which does not seem to fear too much the ECB’s loss of support for the profitability of euro area banks in general.
Although the President of the European Central Bank Christine Lagarde continues to put her hands forward, unless yet another inflationary shock occurs, the phase of rate increases should in theory be over, to make way for the cuts. And this means that the boom in profits from which European banks and in particular Italian banks have benefited, thanks to the positive effect that the monetary tightening has had on the net interest margin (NII), is destined to decline.
Said this, Andrea Orcel has never relied too much on external factors, or at least not only, focusing instead on the intrinsic value and strength of UniCredit, which he was able to bring out in the first place.
The AD has so further raised the dividend bar, promising a remuneration for stakeholders of around 10 billion for this 2024, after the 8.6 billion euros due in 2023.
The same earnings outlook that the Italian bank will collect in 2024 has been improved.
Hence the flurry of buying on shares, triggered in the wake of a market that rewarded shares above all “unique and winning” strategy, words of Orcel, which the institute is continuing to carry forward, and which was once again explained by the CEO during some interviews given to some national newspapers, published today.
In an interview with the Corriere della Sera, the CEO, besieged once again by the question that has been following him for a long time and which sees UniCredit as the protagonist as – for now only in rumors – possible “big mover of banking risk”, he expressed himself as follows, or rather repeated:
“I only have in mind the creation of value and I want to maximize it over time in a sustainable way. In the coming years what will create it is within us: technology, factories…Since there is a lot of value to create, I have no pressure. Of course, the right M&A adds value, but it must be suited to our strategy and at the right price. Today, in many cases, mergers are more convenient for those who propose them rather than for those who should do them, like us.”
Meanwhile, thanks to yesterday’s rally, In the last few hours Orcel has been able to show off another success: UniCredit’s market value at 50 billion euros. A capitalization that the Italian bank has touched for the first time after the collapse of Lehman Brothers.
The milestone was reached just yesterday, February 5, 2024, the day on which Consob published a statement from which it emerged that the capitalization of the Italian stock exchange, thanks to the 20.5% increase collected during 2023 on an annual basis, has returned to “levels before the great financial crisis of 2008 and the bankruptcy of the Lehman Brothers bank”.
A note from Equita also spoke about the UniCredit miracle, underlining the “strong profit generation capacity” confirmed by the Italian bank and the “even more attractive remuneration” for the shareholders.
The solidity of the Italian Big Bank emerged both from the quarterly report and from the call with which Orcel commented on the accounts.
In particular, the latter, according to the Milanese SIM, “provided messages in our opinion that were supportive on the resilience of UCG’s business and on the the bank’s ability to sustain high profitability/remuneration, even in a market context less favorable than the current one”.
Equita illustrated the main points that emerged from the call:
Management has shown itself confident in guaranteeing an annual remuneration of at least €7.7 billion (i.e. a payout of 90% on the 2024 profit guidance of c.€8.6 billion) even beyond 2024. In any case, if the generation of profit were lower, UniCredit would have the opportunity to use part of its excess capital to support distribution to shareholders.
Also thanks to the activity carried out on the replicating portfolio, UniCredit reiterated that it has a relatively reduced sensitivity of the net interest margin (NII, ergo the item conditioned by the ECB’s moves), with -25bps reduction in expected rates have an annualized impact of €140 million (1% NII 2023). UniCredit has strengthened its fee growth target from the previous €1.2bn to €1.4bn, with the majority of the increase attributable to the payments business, on which a further update will be provided by the first quarter of 2024. In the business insurance, UniCredit reiterated the desire to rationalize existing partnerships (with Allianz indicated as main partner) and to internalize the Life business, with focus on Unit Linked.
The focus on containing operating costs, expected to decline on an annual basis, has been confirmed. Reiterated that the overlays will be released if they are not used to cope a deterioration in asset quality.
However, UniCredit did not stop here.
With regard to the capital position-M&A strategy the group – Equita further pointed out – said it still sees “space for RWA optimization in the coming years” which means that the message is the following:
“Capital generation will continue higher than the generation of profit”.
Regarding the issue of excess capital, Orcel did not exclude the possibility a priori launch any M&A operations, mergers and acquisitions, making it known that another option in this sense could be to provide to the members also further remuneration.
Having said this, the banker reiterated, as he had already done in Davos, that “in the current market context there is less pressure for M&A”.
Among other things precisely UniCredit enjoys internal strength which does not necessarily need the ECB crutch, nor a merger with another Italian bank to be armored.
Of course, it is true that if a good opportunity arose, the CEO would not disdain it.
The actions of the target bank must however, in his opinion, reflect the fundamentals of the institution and not be inflated, as previously mentioned, from any stock market rumors:
Stock market rumors which have been revealed several times in Piazza Affari, not to mention wasted, leading market operators to bet on yet another banking risk that, in the end, didn’t exist.
Another element that emerged from the call, Equita pointed out, relating to the “distribution front” of remuneration to shareholders with dividends and buybacks, is the fact that “the dividend payout could increase further from the current 40%”.
All the news that emerged from the publication of the accounts and the call led Equita SIM to raise, especially after the call, 2024 profit estimates of 11% to €8.2 billion, still 5% lower than UniCredit’s guidance) and 6% lower than 2025 at €7.5 billion.
Equita explained the revision of 2024 profit estimates with the forecast of a higher NII (+4%, down -3% y-o-y), and with lower operating costs and LLPs (28 to 25bps).
As for 2025, SIM has talked about acceleration of commission growth, against a confirmed NII down 9% year-on-year.
Confirming the strong confidence in the bank, and incorporating a 90% payout, without assuming any use of excess capital, the Milanese SIM concluded today’s note dedicated to UniCredit, announcing that it foresees a “overall cumulative distribution based on 2024-25 profit exceeding €14 billion, greater than 28% of market capitalization.
Which is why it’s always Equita revised the target price upwards by 11% on UniCredit shares to €34.5, compared to a 2025 P/E ratio of 6.2x, a P/TE of 0.95x and a ROTE above 15%.