UniCredit: Another Target Price Upgrade Signals Positive Outlook

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UniCredit (OTCPK:UNCFF, OTCPK:UNCRY) has garnered attention once again as positive news unfolds, prompting another target price upgrade. Several key announcements are shaping the bank's prospects for the future.

Firstly, UniCredit has surpassed the Minimum Requirement for own funds and Eligible Liabilities (MREL) requirements set by EU Authorities. The bank's coefficients stand at 30.90% of risk-weighted assets (RWA) and 9.34% of financial leverage (LRE). These robust figures ensure sufficient loss-absorbing capacity and enable continued dividend payments and share repurchases. UniCredit is actively repurchasing its own treasury shares, with plans to acquire up to 230 million shares worth approximately €2.34 billion.

Furthermore, UniCredit's cost-cutting measures persist following impressive quarterly results. The bank intends to utilize its projected restructuring charges for 2023 to facilitate voluntary exits, with around 1,900 employees expected to depart. This streamlining of operations, coupled with strategic hiring of young talents, bolsters UniCredit's commercial franchise and digital capabilities. With a workforce reduction of approximately 10%, the bank aims for a lower cost/income ratio over the next three years.

Additionally, UniCredit is addressing potential concerns related to AT1 instruments, triggered by Credit Suisse's write-off. UniCredit has proposed early repayment, likely amounting to €1.25 billion. This move may have a negative impact of around 40 basis points on the CET1 ratio, but the bank is proactively managing the situation.

Considering these developments, Mare Evidence Lab has raised its target price for UniCredit from €22 to €24 per share, indicating a potential upside of 60% compared to the current stock price. The updated targets reflect an optimistic outlook for the bank, with expectations of net interest income peaking and remaining above 2022 levels in 2024-2025. A robust pre-AT1 net profit of €7 billion, RoTE of approximately 11%, and a CET1 capital ratio of 16.7% are anticipated for 2023. Shareholders can look forward to dividends of €1.41 per share in 2023, yielding 7.6%, and increasing in subsequent years.

While risks such as capital pressures from the Russian market, macroeconomic conditions, potential M&A activities, and interest margin reductions exist, UniCredit's strong fundamentals and positive trajectory support the "buy" rating. The bank's commitment to exceeding expectations by distributing approximately €20 billion to shareholders, representing over 50% of the current market capitalization, is a testament to its long-term value.

UniCredit's continual target price upgrades demonstrate growing confidence in its ability to deliver favorable returns to investors, making it an appealing prospect in the market.

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