Societe Generale downgrades Julius Baer due to costly "aggressive" hiring strategy
Societe Generale downgraded Julius Baer to ‘hold’ from ‘buy’ and increased its price target to CHF51 from CHF47.
Cboe CHM 30
17,354.38
15:44 29/04/24
Julius Baer Group Ltd
Fr.49.29
15:39 29/04/24
The company’s second half 2016 pre-tax profit was marginally above consensus at 2% and revenue was 3% ahead, partially offset by costs being 3% higher than the consensus.
The gross margin was higher than consensus at 88 basis points (bp) compared to 86 bp while net new money (NNM) of CHF6.4bn reflected an improvement in the NNM growth rate to 4.1% from 3.7% in the first half.
At first glance it seems the group’s growth credentials are in tact however much higher costs due to the aggressive hiring of relationship managers in emerging markets have impacted profits significantly, according to the bank.
The broker compared Baer with UBS’s Wealth Management division for the second half performance compared to the first.
While UBS WM encountered a 3% decline in revenues and NNM growth of only 1.1% it has been strict on costs resulting in a small decline in PTP. Baer in comparison was able to keep revenues flat but costs inflated 13% resulting in a 25% decline in PTP.
“We question whether investors should reward Baer for an aggressive hiring strategy that might not deliver a near term J-curve improvement in profits, particularly in light of a potential emerging market slowdown given recent US$ appreciation. Likewise, we believe investors are punishing UBS too much for its defensive strategy in WM, especially when it is more than compensating for this with attractive growth in its WM Americas and IB divisions,” said the broker.
PTP forecasts have been increased by 3% for 2017 and 2018 dye to higher revenue forecasts which are partially offset by cost assumptions by the broker.
The share price of Julius Baer increased by 2.33% to CHF45.75 at 1255 GMT on Thursday.