Julius Baer (SWX:BAER) Stock May Be 36% Undervalued Following FINMA Probe Closure

Julius Bär Gruppe has delivered a 54.8% share price gain over the past 5 years, so the immediate question for anyone looking at the stock today is whether that performance is backed by the returns the bank earns on its capital. With recent regulatory headlines now largely in the rear-view mirror, the focus turns to how well those underlying economics line up with the current share price.

• Over 5 years, a 54.8% return puts real weight on the question of whether Julius Bär’s current valuation is fully supported by the profitability of the capital it employs.
• FINMA’s conclusion of its probe into serious anti money laundering and governance issues, along with the bank’s remedial steps, may support a cleaner risk framework that can influence the sustainability and cost of future capital deployment.
• Prefer to judge Julius Bär Gruppe on earnings? See what Julius Bär Gruppe's 13.4x P/E says about the price.

The issue now is whether the returns Julius Bär earns on its capital are strong and consistent enough to make today’s share price look well grounded on that basis.

To see how Julius Bär’s capital returns compare with those of other banks and financial institutions, review it alongside stocks in the 224 resilient stocks with low risk scores.

Does Julius Bär Gruppe Look Undervalued on Excess Returns?

The Excess Returns model looks at how much profit Julius Bär Gruppe is expected to earn above the return that shareholders require on its equity. For Julius Bär, the inputs point to a business that analysts expect to keep generating returns on capital above that hurdle.

Book value is modelled at CHF35.84 per share, with a stable book value estimate of CHF39.30 per share, while stable EPS sits at CHF6.44 per share. Against a cost of equity of CHF2.33 per share, the model estimates an excess return of CHF4.10 per share, consistent with an average Return on Equity of 16.38%. That gap between returns generated and returns required is what drives the intrinsic value outcome. The Excess Returns projections put this substantially above the current share price of CHF74.28.

FINMA’s conclusion of serious AML and governance breaches, and the corrective work that followed, helps explain why the market still prices Julius Bär below what these excess return assumptions support. You can see how this estimate compares with other methods, and how sensitive it is to changes in profitability and risk, in the full valuation breakdown. Find out what Julius Bär Gruppe could be worth using our Excess Returns estimate.

The Julius Bär Gruppe Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where the valuation puzzle for Julius Bär Gruppe leaves off by explaining which future paths for earnings, margins and asset growth would need to occur for the share price to end up materially higher or lower than it is today. Each scenario outlines the assumptions that underpin its own view of fair value, so you can compare those expectations with the actual results as they are reported over time on Julius Bär Gruppe's Community page.

A written, number driven view on Julius Bär Gruppe helps lock in a clear set of expectations that you can test against how the bank’s capital returns and risk profile evolve from here. With the regulatory probe now closed and a refreshed governance and operating structure in place, a structured Narrative makes it easier to track whether those changes and new leadership moves, such as the Asia COO appointment, ultimately support the economics implied by today’s price.

Share your own Narrative for Julius Bär Gruppe and set out the assumptions behind your valuation.

One more Julius Bär Gruppe check that belongs beside the valuation work

The share price story and capital return maths only go so far, because Simply Wall St’s broader checks have also flagged specific concerns that could change how you weigh Julius Bär Gruppe overall. Take a closer look at 1 warning sign before settling on a valuation.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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