Key Takeaways

UniCredit's strategic focus on high-value segments and diverse geographical presence is expected to drive growth and boost profitability.
Investments in digital transformation and potential M&As could enhance efficiency, revenue, and capital generation, boosting earnings growth.
Interest rate normalization and geopolitical dependencies may reduce revenues, with M&A risks and inflationary pressures further straining profitability and operational complexity.

Catalysts

About UniCredit

Provides commercial banking services in Italy, Germany, Central Europe, and Eastern Europe.What are the underlying business or industry changes driving this perspective?

UniCredit plans to leverage its strong presence in Italy, Germany, Austria, and Central and Eastern Europe to drive future growth, focusing on high-value segments such as SMEs and affluent clients, which should lead to increased revenues.
The bank's ongoing digital transformation and investment in technology, AI, and data are expected to improve efficiency and customer experience, potentially increasing net margins.
UniCredit's Alpha initiatives targeting commercial and operational improvements are poised to unlock new revenue streams and enhance capital generation, supporting earnings growth.
Structural advantages from diverse geographical reach and product offerings are anticipated to bolster UniCredit's profitability and capital efficiency, with positive impacts on net profit and return on tangible equity.
Planned strategic investments and potential M&A activities could provide additional growth opportunities, while also impacting earnings through enhanced scale and synergies if executed successfully.

UniCredit Earnings and Revenue Growth

UniCredit Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming UniCredit's revenue will grow by 1.3% annually over the next 3 years.
Analysts assume that profit margins will shrink from 39.5% today to 38.3% in 3 years time.
Analysts expect earnings to reach €9.6 billion (and earnings per share of €7.31) by about May 2028, up from €9.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €10.7 billion in earnings, and the most bearish expecting €7.7 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.2x on those 2028 earnings, up from 8.4x today. This future PE is greater than the current PE for the GB Banks industry at 8.3x.
Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 9.94%, as per the Simply Wall St company report.

UniCredit Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The normalization of interest rates is expected to have a considerable adverse impact on net interest income, particularly in Italy, potentially reducing overall bank revenues.
With the integration costs related to the Russia market and uncertainties surrounding the sanctions, there could be significant financial implications, impacting the company's net margins.
Potential M&A activities, including those with Banco BPM and Commerzbank, involve execution risks and could lead to increased operational complexities, affecting earnings if not well-integrated.
Inflationary pressures and cost-related challenges, despite efforts to contain them, may exert upward pressure on operational expenses, thereby impacting net profit margins.
The bank's dependence on stable geopolitical conditions creates vulnerability; any escalation of tensions or political changes, especially in Central and Eastern Europe, could disrupt operations and affect revenue streams.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of €52.995 for UniCredit based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €70.0, and the most bearish reporting a price target of just €35.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €25.0 billion, earnings will come to €9.6 billion, and it would be trading on a PE ratio of 9.2x, assuming you use a discount rate of 9.9%.
Given the current share price of €50.97, the analyst price target of €53.0 is 3.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.