UniCredit Earnings: Interest Rates' Tailwind Persists; FVE Up on Improved Operating Efficiency

No-moat UniCredit delivered its most impressive performance to date, reporting a net profit of EUR 2.6 billion for the first quarter of 2024, which was 24% year-over-year growth. Despite the prevailing trend of shrinking margins, the bank maintained robust net interest income, experiencing a notable 9% increase compared with the previous year. UniCredit showed commendable cost discipline, with operating expenses remaining essentially flat over the last two years. Historically active in mergers and acquisitions, UniCredit discloses integration costs below the operating line, while we see these costs as being more recurring in nature. However, amid fluctuations in integration costs, the bank decreased its total noninterest expense by 20% when comparing the past two-year results to its 10-year average. We slightly increase our fair value estimate by 3% to EUR 33 from EUR 32 per share. We believe that UniCredit’s strategic focus on fee and commission income, coupled with its sound cost management, could shelter it from lower future interest rates.