Despite some recent weakness in the brokerage sector, the mid- to long-term outlook remains rosy, say analysts from UBS Securities LLC in a new report.
UBS analysts report that mixed capital market trends and negative sentiment caused the brokers and universal banks to underperform the broader markets in February. The brokers’ stocks slipped 8.7%, and the universal banks were down 5.2%, in a period when the S&P slipped 2.2%, and the MSCI EAFE index was up 0.7%.
“While we understand the pullback given recent issues (sub-prime & some increased risk aversion), we also don’t think the mid-to-long-term outlook has changed much,” it says. “With the brokers trading at 2.2x book value, we view the 12-month risk/reward as attractive & prefer the brokers/asset managers over the trust banks, followed by the U.S. universal banks, though defense may win in the short term.”
UBS Securities notes that the market trends were mixed in February. On the upside, equity underwriting picked up; announced mergers and acquisitions were 20% higher from the prior month, and the backdrop is still favorable; fixed-income trading volumes gained 10% sequentially; and, the big picture trends remain favorable. As for the downside, debt underwriting slowed a bit; equity markets slipped; average volatility remains subdued despite a month-end spike; and, risk aversion may be rising.
“We expect the brokers to report healthy results in [the fiscal first quarter], and we actually bumped up our estimates a bit for Goldman Sachs and Morgan Stanley. That said, clearly it’s the outlook that will have an impact on the stocks,” the report concludes.
Brokers expected to report healthy results in first quarter: report
Sector’s 12-month risk/reward profile is attractive, says UBS Securities
- By: James Langton
- March 2, 2007 March 2, 2007
- 12:40