The biggest threat to UniCredit’s continued success lies in the prospect of lower interest rates and worsening economic conditions.
Investors are betting on the European Central Bank to cut interest rates this year, which could weigh on UniCredit’s net interest income. Additionally, there are concerns that lower interest rates will be accompanied by a surge in non-performing loans, as borrowers who have been squeezed as a result of previous interest rate increases are struggling with higher financing costs.
But there are still few clear signs that borrower stress will increase. In last week’s results, the company highlighted that its non-performing loan ratio is low and declining.
Meanwhile, Orcel acknowledged on a call with analysts last week that the bank was unlikely to reap the same benefits from rising interest rates this year, but it has grown to account for nearly a third of its revenue. He said bank fees should help offset the impact. .
Fees in 2023 were 7.5 billion euros, down 2% on the previous year, weighed down by lower current account fees in Italy, although performance improved towards the end of the year.
Simply put, UniCredit’s stock price looks like it needs to rise further if its loan book remains relatively strong and net interest margins don’t reverse too quickly.
The stock trades at a 25% discount to the bank’s projected book value over the next 12 months, and is not expensive even after a strong rally.
Asker says: Buy
Ticker: BIT:UCG
Stock price at closing: 29.06 euros
Algie Hall is investment editor. Citywire Elite Companies
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