In the past 24 hours, there has been coverage of a Swedish Activist Investment Firm called Cevian Capital, which has taken a significant ~€1.3bn stake in UBS. The firm has been in the media pushing its investment thesis, which has supported the stock, with UBS rallying more than 5% overnight to hit a new all-time high. The components of their thesis are very similar to our own (original views here), although they’ve backed it with a touch more capital than MM!
They see no downside in the position, which is an excellent place to start! While we take that comment with a grain of salt, their thesis is all about the embedded value in the UBS business post-acquisition of Credit Suisse and how the combined entity can generate higher returns on capital by having a greater scale. UBS is the largest investment bank/wealth management company in Europe/Asia, however, the likes of Morgan Stanley trump them in the big US market, and their valuation is rewarded for it. UBS trades on ~1.3x tangible book value vs. Morgan Stanley (MS US) on ~2x, while they think UBS will ultimately be a better business, with a better mix driving more stability in earnings.
UBS is set to provide a more comprehensive roadmap for their CS integration in February, and while any integration of this size will have a few twists and turns, they are doing an excellent job for now. Our original thesis for buying the stock in August remains intact, with Cevian singing from the same song sheet as MM.
- We like the stock, believing the scale benefits achieved through the combined entity will ultimately prove powerful.
