United Bankers H2'24: Pause in earnings growth after record results

Translation: Original published in Finnish on 2/13/2025 at 8:00 pm EET.

We revise our target price for UB to EUR 18.0 (was EUR 19.0) and reiterate our Reduce recommendation. There were no major surprises in the H2 report and, as expected, 2025 will be a gap year for earnings growth after a robust 2024. Valuation is neutral on our forecasts, and we see no upward drivers for the share price before a return to earnings growth.

A good finish for an excellent year

UB's H2 revenue slightly exceeded our forecast at 29.1 MEUR (H2’24e: 27.8 MEUR). The overshoot was exclusively due to performance fees, which were about 2 MEUR higher than we had predicted. Meanwhile, fund management fees fell short of expectations following sluggish sales of the spearhead funds. The level of asset management fees was a clear positive surprise, while structured product volumes and Capital markets services remained very low. On the whole, H2 revenue development was neutral compared to our expectations.

EBIT was 9.9 MEUR, thus also exceeding our forecast. The earnings beat was, of course, explained by an overshoot in revenue and there were no material surprises on the expense lines. The dividend was increased by EUR 0.10 to EUR 1.10, in line with our expectations. The payout ratio remained low at around 70%, with the company favoring a steadily increasing dividend.

Overall, 2024 was an excellent year for UB in all respects, and the result is by far the best in its history. New sales performed reasonably well in a difficult market and portfolio management was good. The blemish was once again the sluggish profitability of recurring fees, and after adjusting for performance fees, profitability is still well below peers.

No surprises in the outlook

UB's guidance was fully in line with our forecasts, and the company expects its adjusted operating profit to be significantly below the level of 2024. This is entirely explained by the performance fees, which will fall from their exceptional level in 2024. In other respects, we think the outlook is still quite good. The market environment seems to be picking up and the company's product offering is in good shape. The key short-term issues are the impact of the media debate on new forest fund sales, real estate fund redemption rates and performance fee levels.

Result falls sharply in 2025, back to earnings growth in 2026

We have lowered our 2025 projections substantially, but in other respects the changes to our estimates have remained small. In 2025, UB's result will fall sharply, driven entirely by performance fees. In 2026, the result should start to grow strongly again, and the record result of 2024 will be reached in 2027. In our forecasts, the company’s earnings growth is driven by AUM growth in Wealth management, especially in strategically important funds (NFF, Renewable Energy and Forest). Real estate funds will slowly start to support growth from 2026 onwards, but the level of sales is more modest in our estimates than in previous years. The leap in profitability improvement based on recurring income remains to be seen, but we still see no reason why this indicator should not improve in line with growth in the coming years. In the next few years, we expect performance fees to remain below the 2022-2024 peak levels. The dividend is rising steadily.

Valuation is neutral

UB's valuation (2025e P/E 17x 2026e 13x & dividend +6%) is neutral in absolute and relative terms and in line with historical pricing multiples. It is therefore difficult for us to see any upside until we see the depth of the earnings dip and, on the other hand, the timeframe for earnings growth to begin. The near-term expected return relies in particular on a strong dividend yield of +6%.