United Bankers: The sales machine is still undeperforming

Translation: Original published in Finnish on 12/01/2025 at 08:00 pm EET

UB's sales have picked up after a subdued start to the year, but the sales engine is still underpowered. A key challenge is the company's spearhead funds, whose sales are sluggish. In this report, we have examined the sales outlook of the company's spearhead products, and we believe that expanding the product offering would be more than warranted. Our estimates have remained unchanged, and we expect strong earnings growth from the company in the coming years. Relative to our estimates, the share is neutrally priced, and we still await a more robust recovery in new sales.  We reiterate our EUR 18.0 target price and Reduce recommendation.

Revenue has picked up, but spearhead products are underperforming

We believe UB's sales in the second half of the year have been moderate. Net inflows into traditional funds have turned to good growth after a weak start to the year, although the weight has been on low-margin interest rate products. We believe that asset management sales have continued the excellent development that began last year, and the company has also continued its successful recruitments in private banking. While the impact of asset management growth on fees is limited in the short term, it has significant strategic value, as it offers clear sales potential for the company's spearhead products in the future.

UB's key challenge is the modest sales of its alternative spearhead products (real estate, forest, and renewable energy). We believe that sales of these funds will remain sluggish for the second consecutive year, and due to their high fee structure, this will clearly erode the company's growth. Without the growth of spearhead products, the company's overall growth will inevitably remain modest, and the long-expected earnings improvement on the back of recurring fees will not fully materialize.

Does the current product offering allow the sales machine to operate at full power?

A key question for UB is when the sales of its spearhead funds will really pick up. The selling power has clearly strengthened in recent years, and we believe the company's new sales potential has risen from the previous peak years. In this report, we have examined the new sales outlook for the spearhead funds for the coming years. Overall, we see a moderate risk that the company will not be able to fully leverage its sales engine with its current product offering in the coming years, as the market outlook in real estate, for example, is weak. Thus, we would find it more than warranted for the company to expand its range of spearhead products to more reliably leverage the full power of its sales engine. Interesting opportunities for expanding the product offering would, in our view, be a fund of funds in infra or PE.

No estimate revisions, earnings to turn to growth next year

We predict UB's results will take off in 2026 and the earnings decline in 2025 will be offset by 2027. Earnings growth is, as usual, driven by the growth in Asset Management's AUM, particularly in spearhead funds and asset management. As a whole, we expect EBIT to grow by 14% per year in 2026-2028. Profitability based on recurring income will also begin to improve in the coming years as growth accelerates. The dividend will steadily grow in line with the company's dividend policy.

The short-term valuation picture is neutral

UB's valuation level is neutral for 2025-2026, in both absolute and relative terms. In the long term, we believe the expected return on the stock is promising at current levels, but this requires the realization of our forecasted earnings growth. In the short term, there are few share price drivers as earnings decline and new sales are sluggish. In the short term, the expected return is limited to a dividend yield of over +6%, which does not sufficiently compensate for bearing the risks.