Unicredit: Attributable profits fall (-13.3%), but it maintains its potential thanks to lower costs

Bankinter | Unicredit´s ordinary attributable profits have fallen to 1.024 billion euros in the second quarter of 2018 (Q2 2018) (-13.3%) but has beaten expectations. The principle figures compared with expectations for Q218 (Reuters): Gross Margin: 4.947 M€ (-4.3%; -3.3% t/t); provisions: -504 M€ (-23%; 1.5% t/t); BNA: 1.024 B€ (-13.3%; -7.9% t/t vs 975 M€ expected).

 

The account of losses and profits reflects: (i) a certain loss of traction in income due to the fall in income from trading (-25.8%) and to the negative impact of interest rates – the interest rate margin descended slightly to 1.42% (vs 1.47% in Q118), (ii) a significant effort to reduce costs (-7%; -2.9% t/t) thanks to the implementation of the bank´s cost cutting plans progressing more rapidly than expected and (iii) a stable risk cost at 45 (45 bp in Q118 vs 76 bp in Q417), which remains below the bank´s guidance of 68 bp.

 

The capital ratio CET-1 has descended to 12.51% (vs 13.06% in Q118) due to the negative impact (-35bp) of the portfolio of bonds available for sale, which is closely related to the increase in the risk yield on Italian bonds.

 

Despite this impact, the ratio remains in line with the bank´s objectives for the whole of the year (12.3%/12.6%). The RoTE is 8.7% (vs 8.9% in Q118) – in line with the objective for the whole year (9.0%).

 

We maintain our Buy recommendation on the basis of: (i) the bank´s strategic plan pivots on cost savings and the sale of unproductive assets where we see a greater interest among investors and (ii) we consider the bank´s profitability objective (RoTE of 9% in 2019) to be conservative. We also think that Unicredit has the ability to surprise positively thanks to the potential for reduction in the cost of risk (provisions).