How Unicredit share price outperformed European banks

Unicredit (MIL: UCG) share price has done well in 2023 as it outperformed all European banks like Deutsche Bank, BNP Paribas, and Societe Generale. The stock has jumped by more than 80% this year while other banks have risen by less than 30%. 

Unicredit has a longer track record of performance as its stock has surged by over 160% in the past five years. Only UBS, which has soared by over 120% has come close in the same period. 

Unicredit vs BNP Paribas vs Julius Baer vs UBS

Unicredit’s growth has been engineered by Andrea Orcel who became the CEO in 2021. In his time, the company has slashed costs by eliminating over 10,000 jobs, equal to 12% of the total workforce.

Unicredit has also been generous to shareholders as its profits have jumped. It has increased its buybacks and dividends sharply in the past few years. In 2023, it announced plans to reward its shareholders with over 6.5 billion euros in cash.

The company has also become a cash flow machine. It now has over 10 billion euros, which it intends to use for mergers and acquisitions, especially in Europe. Orcel believes that M&A can help the bank attain a $100 billion market cap. In a recent statement, he told Bloomberg:

“Europe needs banks with market capitalizations ahead of $100 billion if we want this economic bloc to hold vis-à-vis the US or China.”

Unicredit stock price and profitability growth happened at a time when the bank has created a fortress balance sheet. It has a CET-1 ratio of 16.6%, which is one of the highest in Europe. JPMorgan, which is also seen as the safest bank in the US, has a CET-1 ratio of about 13.2%.

The most recent results showed that the company’s revenue rose to over €6 billion in Q3, its record level. This 25% revenue growth happened as the company benefited from higher interest rates in Europe. The European Central Bank (ECB) has hiked rates to a record high, boosting its net interest income.

The challenge for Unicredit is whether it can continue growing its earnings as interest rates start coming down in 2024. Also, it has the challenge of a slowing European economy, with its key markets expected to slow down this year. Its CEO believes that its net profit for the year will be over €7.5 billion. 

Unicredit chart by TradingView

The daily chart shows that the Unicredit stock price has been in a strong uptrend in the past few months. It has formed an ascending channel, which is shown in blue. The stock has remained above the 50-day and 100-day Exponential Moving Averages (EMA).

Also, the Relative Strength Index (RSI) has been in an uptrend. It has formed a rising wedge pattern, which is a bearish sign. Therefore, there is a likelihood that the RSI will have a bearish breakout. This is a sign that the shares could retreat in the coming weeks or months. If this happens, the key support to watch will be at €22.

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