Friday, May 30, 2014

Seeking Alpha: UniCredit's Valuation Seems Fair Given The Potential And The Risks

Like other European banks badly damaged in the credit crisis and the deep recession that followed, UniCredit SpA (OTCPK:UNCFF) has faced a difficult road back to normalcy. The company has had to turn to highly dilutive financing to stay in business and conditions in the company's core Italian market have not really improved all that quickly. Even so, the company's shares have followed a similar trajectory to damaged-but-not-dead European banks like Societe Generale (OTCPK:SCGLY), Santander (SAN), and Intesa Sanpaolo (OTCPK:ISNPY), with the stock up about 47% over the past year and over 130% over the past two years.

UniCredit is a challenging case from a valuation perspective. The company's sizable exposure to Central and Eastern Europe (or CEE), which includes Russia and Turkey, is a major potential growth driver, as would be an economic recovery in Italy. Management has laid out ambitious goals for 2018, but I believe they are achievable. Unfortunately, the shares just don't look all that cheap today and Societe Generale may well still be the better option.

Investors considering these shares should note that the U.S. ADR has limited and erratic liquidity. Investing in the Milan-listed shares (RIC: CRDI.MI, BBG: UCG.IM) will offer more consistent liquidity.

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UniCredit's Valuation Seems Fair Given The Potential And The Risks

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