UBM Development (UBS) Q2 2025 Earnings Call August 28, 2025 04:00 AM ET Company ParticipantsThomas Winkler - CEOPatric Thate - CFOStefan Scharff - Managing PartnerConference Call ParticipantsSimon Stippig - Senior AnalystPhilip Hettich - Equity Research AnalystOperatorwarm welcome to today's earnings call of the UBM Development AGI following the publication of the first half year figures of 02/2025. We are delighted to welcome the CEO, Thomas Winkler, and the CFO, Patrick Tatte, who will speak in a moment a ...

Financial Data and Key Metrics Changes - The company achieved a black zero in Q2 2025, indicating a return to profitability is expected in the second half of the year [4][6] - Earnings before tax improved by 47% in the first half of 2025, with an equity ratio back above 30% [6][7] - The successful issuance of a green hybrid increased equity above EUR 350 million, while net debt remained below EUR 550 million [7] Business Line Data and Key Metrics Changes - Residential sales doubled in the first half of 2025, with 208 apartments sold compared to 97 in the same period last year [8] - The company has a pipeline of 2,800 apartments over the next four years, ensuring steady income [9] Market Data and Key Metrics Changes - Newly started residential construction projects in Germany decreased by 85% since Q4 2022, leading to forecasts of fewer than 200,000 new apartments in 2025 [11] - Residential prices in Q2 2025 rose by 3.8% in Germany, 4% in Austria, and 17% in the Czech Republic, indicating a tightening supply [12] Company Strategy and Development Direction - The company emphasizes the importance of ESG (Environmental, Social, and Governance) factors, which are expected to drive future growth in Europe [16][19] - The company aims to maintain its industry leadership in sustainability and is considering potential project rezoning from office/light industrial to residential to address the supply-demand imbalance [55] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about returning to profitability, citing a flight to real assets and a significant market shakeout as positive indicators [21][23] - The company anticipates a continued demand for residential properties due to a shortage of supply and rising prices [50] Other Important Information - The company has successfully managed its liquidity, with EUR 168 million available against repayment obligations of EUR 102 million for 2025 [13] - The hotel segment output was reported at EUR 43 million, with a different mix of contributions compared to the previous year [34] Q&A Session Summary Question: Update on sales in Mainz - The company sold two apartments in Q2, maintaining a 50% sales rate, with ongoing reservations pending bank financing [29] Question: Letting process for Timber Pioneer in Frankfurt - The letting process is slow due to summer breaks, but management expects positive news in September [32] Question: Hotel segment performance - The hotel segment output is on par with last year, with Poland performing better, while Germany faced challenges due to the absence of extraordinary events [35] Question: Update on residential projects - The company plans to start construction on new residential projects next year, with a focus on smooth sales [36] Question: Potential reallocation of projects from office to residential - The company is considering rezoning projects based on market conditions and demand for residential properties [55] Question: Update on Kopinski Jockberg hotel sale - Exclusivity has been granted to one party for the sale, but no final agreement is expected before year-end [56] Question: Office lease lead times - Lead times for office leases have extended significantly, with management agreeing that it could take up to nine or ten months [68] Question: Personnel costs outlook - Personnel costs are expected to decrease in the second half due to a reduction in the workforce, potentially supporting overall results [76]

Financial Performance - UBS reported a strong 2Q25 with a net profit of $2.4 billion, and an underlying profit before tax of $2.7 billion, resulting in an underlying RoCET1 of 15.3%[11] - For 1H25, the net profit was $4.1 billion, with an underlying profit before tax of $5.3 billion and an underlying RoCET1 of 13.3%[11] - 2Q25 underlying revenues increased by 8% to $11.6 billion, while underlying operating expenses increased by 3% to $8.8 billion, driving profitability[15] - Total assets reached $1,670 billion in 2Q25, an increase of 8% QoQ and 7% YoY[22] Integration and Cost Savings - Approximately 1/3 of Swiss-booked client accounts have been successfully transferred onto UBS systems, with the aim to migrate the remaining accounts by the end of 1Q26[11] - Cumulative gross cost saves of $9.1 billion have been achieved[11] - The company has achieved approximately 70% of its gross cost save ambition and remains on track to achieve its end-2026 target[19, 20] Business Division Performance - Global Wealth Management (GWM) reported underlying total revenues of $6.156 billion, a 6% increase YoY, and a profit before tax of $1.443 billion, a 24% increase YoY[30, 31] - GWM invested assets reached $4,512 billion, an increase of 7% QoQ[30, 32] - The Investment Bank (IB) reported underlying total revenues of $2.815 billion, a 13% increase YoY, with Global Markets revenues increasing by 26% YoY[39, 40, 41] Capital and Liquidity - The CET1 capital ratio stood at 14.4%[11] - The Liquidity Coverage Ratio (LCR) averaged 182%[24, 26]

Core Insights - UBS believes that artificial intelligence is triggering a profound revolution in asset management, characterized by human-machine collaboration rather than machine replacement of humans [1] - The report emphasizes that the most successful investors in the next decade will be those who can leverage both quantitative and traditional stock-picking methods, using AI as a force multiplier [1] AI's Key Tools - AI is no longer a distant concept but a toolbox of data-driven technologies deeply embedded in investment processes, driven by data explosion, computational advancements, and the democratization of AI tools [2] - The three most impactful technologies in asset management are identified as machine learning, neural networks, and large language models [2] Machine Advantages - Machines excel in speed, breadth, and consistency, processing data at a scale and speed far beyond human capabilities [3][6] - A machine can analyze thousands of earnings call transcripts daily, identifying anomalies and shifts in market sentiment [6] Human Advantages - Humans possess strengths in context, complexity, and causal inference, allowing them to interpret unique events that models struggle to learn, such as regulatory changes or management shifts [4] - Ethical and value-based judgments are areas where human oversight is irreplaceable, crucial for managing reputation and operational risks [8] Machine Learning and Neural Networks - Machine learning models predict outcomes by identifying patterns in data, enhancing accuracy in signal generation and risk modeling [5] - Neural networks, particularly deep learning architectures, excel in processing high-dimensional, unstructured data, although they face challenges in interpretability and training costs [5] The Singularity of Investment - The traditional barriers between quantitative and fundamental investing are being dismantled, leading to a convergence point referred to as "The Singularity" [9] - Quantitative investors are increasingly integrating fundamental analysis by utilizing AI tools to process both structured and unstructured data [10] Fundamental Managers Embracing Scale - AI tools significantly expand the research scope for fundamental teams, allowing analysts to focus on high-value activities while automating data processing tasks [11] Human-Machine Collaboration - UBS's quantitative research team conducted an experiment validating the "Singularity" theory, showing that a hybrid model combining human insights and machine predictions generated strong returns across a broad stock pool [12][14] - The report highlights that successful investment management firms will build teams that integrate human contextual understanding with machine capabilities [12] Understanding Complexity and Unknowns - Humans are better at constructing investment logic and understanding the interplay of multiple driving factors, especially in complex scenarios where AI models may fail [13] - In times of regime shifts, human adaptability through qualitative judgment is crucial, as AI relies on historical data that may not apply [13]

Core Viewpoint - Goldman Sachs downgraded Deutsche Bank's rating from "Buy" to "Neutral" and Deutsche Commercial Bank's rating from "Neutral" to "Sell" due to their stock performance exceeding the market since the beginning of the year [1] Group 1: Market Performance - The European banking sector has risen nearly 50% year-to-date, significantly outperforming the overall European stock market [1] - Factors contributing to this growth include strong growth momentum, a more stable and steeper interest rate trajectory, and ongoing performance growth and rating upgrades [1] Group 2: Analyst Outlook - Goldman Sachs maintains an optimistic outlook for European banks, projecting an average potential stock price increase of about 10% over the next 12 months, with some stocks rated "Buy" expected to rise by approximately 20% [1] - Stocks rated "Buy" include UBS Group, ING Group, Lloyds Banking Group, BNP Paribas, National Westminster Group, Santander Bank, and HSBC [1] Group 3: Interest Rate Environment - The interest rate curve has steepened this year, with expectations for final rates trending towards a range-bound movement, enhancing investor confidence in the medium-term outlook for net interest income [1]

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Group 1 - The core viewpoint is that small-cap stocks are experiencing a rotation of funds from large-cap technology stocks, supported by dovish signals from the Federal Reserve Chairman Jerome Powell, indicating potential interest rate cuts [1][2] - The Russell 2000 index, a benchmark for small-cap stocks, has outperformed the Nasdaq 100 index in recent weeks, with a 9% increase over three weeks compared to a 3.2% rise for the Nasdaq [1] - Following Powell's comments, the Russell 2000 index saw a single-day increase of 3.9%, marking its best performance since early April, and the inflow into the iShares Russell 2000 ETF reached the highest level since November of the previous year [2] Group 2 - Analysts from Bank of America and UBS believe that small-cap stocks may continue to outperform large-cap stocks in the near term, provided there are no significant macroeconomic surprises [1] - RBC Capital Markets noted that small-cap stocks have finally broken out of their consolidation phase, driven by investor repositioning and outflows from large-cap tech stocks [2] - Truist Financial raised its rating on U.S. small-cap stocks from "less attractive" to "neutral," citing valuation advantages and improving earnings trends [3]

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the positioning and flows of Commodity Trading Advisors (CTAs) in various asset classes including equities, bonds, currencies, and commodities. Core Insights and Arguments 1. **Equities Positioning** - CTAs are nearly max long in equities, holding 94% of a 30-year distribution, indicating a strong bullish sentiment in the near term. Limited room for additional buying exists, even in a bullish scenario. In a negative 2 standard deviation scenario, CTAs could sell $55 billion worth of global indices, which is relatively low compared to historical data [2][23]. 2. **Bonds Strategy** - CTAs are building a significant long position in US bonds while shorting European bonds. They are biased towards paying rates, particularly in the back-end of the curve. High conviction trades include short positions in EU, France, Japan, and Canada [3][32]. 3. **Credit Market** - No changes in positioning are noted; CTAs remain max long in credit assets [3][13]. 4. **Foreign Exchange (FX) Trends** - The dollar's rebound in July was short-lived, leading CTAs to reduce their exposure. Despite recent negative price action, they have slowly begun to buy back USD, totaling $10 billion. A slight increase in G10 buying (GBP & JPY) is noted against some selling in emerging markets [4][13]. 5. **Commodities Outlook** - CTAs are neutral on energy due to range trading challenges but remain bullish on precious metals, with no intention to sell. There is a suggestion to take profits and consider buying back into agricultural commodities [5][22]. 6. **Current Market Signals** - The current signals indicate a bullish outlook for stocks, credit, and precious metals, while being bearish on bonds, USD, and agricultural commodities. Specific bullish indices include XIN9I, NDX, SPX, OMX, TWSE, and FBMKLCI [6][22]. Additional Important Insights 1. **Expected Flows and Positioning** - The expected flows in major markets show significant positioning, with XIN9I at +50% of average daily volume (ADV) and CDX HY at +39% ADV. Conversely, EU10Y is at -36% ADV [12][21]. 2. **Momentum Trading Strategy** - The strategy of "going with the momentum" is emphasized, focusing on assets where CTAs are expected to increase their current positions [16]. 3. **Simulation Tables** - Simulation tables provide insights into expected changes in positions and flows in response to various market scenarios, indicating potential trading strategies for CTAs [24][30]. 4. **Risk Management** - The call highlights the importance of risk management, particularly in the context of potential outflows and market volatility, with strong base effects limiting outflows in equities [2][23]. 5. **Market Levels to Watch** - Key levels to monitor include the S&P 500 and UST 10-year yields, which are critical for assessing market movements and potential trading opportunities [6][32]. This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the current positioning and outlook of CTAs across various asset classes.

ab 19 August 2025 This report has been prepared by UBS Securities Japan Co., Ltd.. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 46. Global Research Japan Economic Presentation Japan Economic Outlook 2025-2027: Normalization to slow but not end Economics Japan Masamichi Adachi Economist masamichi.adachi@ubs.com +81-3-5208 6214 Key message (as of August 19, 2025) Global and Japanese economy to stall with the US tariff ...

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