UBS Group AG (UBS)

Total return at 5 years: 5.2%/year = 3.0% appreciation + 2.1% dividend. The target price ($64) is ex-dividend; the $6 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $94 · Multiples $57) exceeds the market price ($55).

Today — fairly valued: at $55 trades ~3.0% below its value discounted to today (~$57); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($64) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$36.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($55) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-3.2%/year) than we project (8.6%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$8.1 bn of owner earnings in year 5 (vs ~$14.4 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Year-0 is the twelve-month window ended June 30, 2026, built by levels because UBS files an annual 20-F and its quarters travel by 6-K without XBRL: net profit attributable = 2025 profit (US$7,767 million) + first half of 2026 (US$5,840 million) − first half of 2025 (US$4,087 million) = US$9,520 million; revenue is calculated the same way, giving US$52,848 million. Year 1 starts at management's own guidance, not at the filing's trajectory: the shareholder letter sets an underlying return on CET1 capital of approximately 15% as the exit rate toward the end of 2026 and an ambition of 18% reported return for 2028 (assuming a capital ratio of approximately 14%), supported by Credit Suisse integration cost savings that already reached US$10,700 million (expanded target of US$13,500 million by the end of 2026). That trajectory implies year-1 growth of approximately 12% annually, well above the 2% shown by consolidated revenue in 2025 —a year still burdened by integration costs— and decelerates smoothly toward a 5.5% terminal rate, consistent with a mature global wealth management bank. The share count path —a roughly 4% annual net reduction, identical across the three scenarios— comes from the already-revealed buyback pace: the 2025 program (US$2,000 million, 53 million shares, concluded on November 20, 2025), the US$1,900 million buyback executed in the second quarter of 2026, and the new US$3,000 million reserve set up for future buybacks, keeping the CET1 ratio at approximately 14%. The adverse scenario stresses year 1 (3% contraction) from the Swiss regulatory review of foreign subsidiary capitalization, which could require significant additional capital and slow the buyback pace. The favorable scenario assumes the 2028 ambition is fully met.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $64 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $55, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $64 in 5 years plus $6 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $57. Against the current market price ($55), the margin of safety is 3.0% (trades below the maximum → there is margin) and the total return at that price would be 5.2% annually.

• Entry multiple. The current price implies a multiple above the top of the banking band on TTM earnings, reflecting the quality of the business.
• Position within the archetype band. The 12-times exit multiple sits at the midpoint of the [10,15] band, without forcing the top given the pending regulatory risk.
• Expected return versus the bar. The estimated 5-year return is measured against the 10% bar of average profitability and the 4% floor of capital preservation.

• Cash generation. Consolidated operating cash flow is volatile year to year given the nature of a bank's financial assets, inherent to the business.
• Sustained return on capital. Underlying return on tangible equity of 14.4%, above the 10% bar and improving from 8.7% in 2024.
• Reinvestment runway. Growth in CET1 capital and managed assets offers a reasonable reinvestment runway, though bounded by the high-payout target.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Invested assets are the revenue driver for the two capital-light divisions (wealth and asset management, about 60% of consolidated revenue); CET1 capital sets how much the company can return via buybacks without giving up the roughly 14% target ratio; and integration cost savings are the margin engine that separates reported from underlying earnings while convergence continues.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Guided acceleration. Management guides to an earnings growth step-up well above the 2% consolidated in 2025.
• Dependence on financial markets. A meaningful part of managed asset growth depends on market appreciation, not only net new inflows.
• Non-core and Legacy runoff. Weighs on consolidated growth for as long as the planned wind-down continues.

• Revenue recurrence. About 60% of revenue comes from fees on managed assets, recurring by nature.
• Diversification by division. Five divisions with distinct economics reduce dependence on a single business cycle.
• Geographic concentration in Switzerland. Commercial banking and much of the brand depend on the domestic Swiss market.
• Wind-down portfolio (Non-core and Legacy). Still generating operating losses while being wound down, a temporary drag on the consolidated result.

• !Capital adequacy (CET1)CET1 14.4% (+0.4pp above the minimum)
• ✕Reserve coverage (allowance / loan book)0.31% of the loan book
• ✓Credit quality (net charge-off rate)0.16% annually
• !Value creation (ROTCE − 10% bar)+4pp
• ✓Funding (deposit base)Deposits $479.1 bn

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

ⓘ Has a loan book: credit health (delinquency, coverage, normalized CECL, RoA/RoE) is evaluated separately, not with corporate solvency.

• Regulatory capital. Common Equity Tier 1 ratio of 14.4%, in line with management's stated target.
• Loan book quality. Combined coverage of only 31 basis points over the gross loan book, consistent with a portfolio dominated by secured lending.
• Resolvability. FINMA noted that the Swiss emergency plan, while largely compliant, requires further development.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

UBS is earnings-funded: the shareholder's only source of capital is attributable net income (TTM of US$9,520 million). Of the total, approximately 36% goes to the ordinary dividend (US$1.10 per share, paid in the second quarter of 2026), 42% to share buybacks (estimated on the combined pace of the 2025 and 2026 programs) and the rest is retained to support CET1 capital growth. There is no material M&A underway beyond the already ongoing absorption of Credit Suisse.

• Integration execution. Cumulative cost savings above original guidance in the first full cycle since the acquisition closed.
• Capital discipline. Sustains the roughly 14% CET1 ratio target while actively repurchasing shares.
• Transparency on regulatory risk. The shareholder letter explicitly acknowledges the impact of regulatory uncertainty on the share price.

• The Swiss regulatory process over foreign subsidiary capitalization is a multi-year political process that, per management itself, has already introduced uncertainty and affected the stock's relative performance versus peers — an identifiable, dated source of discount (resolution not expected before 2027-2028).
• The Credit Suisse integration, although ahead on cost savings, still shows visible integration expenses (US$645 million in the second quarter of 2026) that depress reported earnings relative to underlying, and the market tends to discount businesses in transition until full convergence is visible.
• Switzerland's emergency plan, flagged by FINMA as needing further development, is a reminder that UBS's resolvability is not yet fully settled, adding a regulatory tail discount on a globally systemically important bank.

It trades close to intrinsic value, far from the required margin of safety. The gap between the underlying return already achieved (14.4%, above the 10% bar) and the multiple the market assigns it today is consistent with sellers motivated by regulatory uncertainty, not a deteriorated business.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -4%/year (-19% total): the margin of safety protects the downside. The bull (+11%/year, +65% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Additional regulatory capital. The Swiss review of foreign subsidiaries could require significant additional capital.
• Multi-year political uncertainty. The Swiss legislative process has already affected the stock's relative performance, per management itself.
• Integration still in progress. Integration expenses and purchase price allocation effects remain present in reported results.
• Investment banking cycle. Investment Bank revenue is sensitive to the origination and trading cycle.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROTCE 14% above the 10% bar, but the margin is limited (+3%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 9% at a PEG of 2.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -3% vs our 9%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -7%/yr, bull-scenario ceiling +9%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: cost advantage, efficient scale, switching costs, intangibles → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -3%, within what we project (9%) — the story squares with the numbers.