UniCredit (UNCFF) surged Thursday after it beat expectations across a host of metrics for the second quarter, including on nonperforming loan sales and and regulatory capital generation, suggesting that its turnaround plan unveiled in December is beginning to bear fruit.
Italy's largest lender reported revenue of €4.9 billion ($5.4 billion), substantially ahead of the Factset consensus for a top line of €4.6 billion, thanks to resilient levels of net interest income and strong fee generation.
Net income was €945 million for the period, marking a double digit beat against the consensus for a bottom line of €676 million, which included a more than €300 million foreign exchange hit taken on the sale of Bank Pekao (BKPKF) .
Gross nonperforming loans fell to €53 billion, from €55.3 billion, while the bank's NPL ratio dropped 40 basis points to 11.0%. Its common equity tier 1 capital ratio rose by 72 basis points to 12.8% during the period, aided by the completion of a number of asset sales, including Pekao and Pioneer Asset Management.
UniCredit shares rose more than 4% during early trading in Milan to change hands at a session high of €17.47, which came in contrast to the 0.51% loss of the Stoxx Europe 600 Bank index, while extending its year to date gain to 27.6%.
"UniCredit's good 2017 second quarter results confirm the early positive impact of Transform 2019 already seen in Q1. All our teams remain focused on the execution and the successful delivery of the plan," said CEO Jean Pierre Mustier.
UniCredit adopted a scorched earth policy toward its growing NPL pile and precarious capital buffer back in December. It announced the sale of more than €17 billion of nonperforming loans, part of which completed during the quarter, and tapped shareholders for more than €13 billion of new equity.
Those measures came closely on the heels of a series of disposals, including its majority stake in Polish lender Bank Pekao, its Pioneer Global Asset Management unit and a range of other smaller assets. Many of these sales also completed during the second quarter.
"We rate UniCredit Buy, given the management focus on self-help, but comparable gearing to [Southern] European peers if rates surprise positively in the future. At 0.7x 2017e TNAV, UniCredit trades at a marked discount to S.European peers (c.1.2x) relative to profitability gap (c.8% ROTE in 2019e vs. peers c.9%)," said Benji Creelan-Sandford, an analyst at Jefferies.
More of What's Trending on TheStreet: