Barclays downgrades Julius Baer to “equal weight” on valuation, risks

Investing.com -- Barclays has downgraded Julius Baer (SIX:BAER) to “equal weight” from “overweight,” cutting its price target to CHF 56.70 from CHF 65, in a note dated Monday.  The revised target closely matches the current share price of CHF 56.30 as of July 25, leaving limited upside potential.  The downgrade reflects concerns over valuation, uncertain capital deployment, and execution risks, despite some operational positives in the first half of 2025. Barclays cited three favourable metrics in H1-2025: an underlying gross margin of 83bps (reported: 78bps), net new money of CHF 7.9 billion or 3.2% of AUM annualized, rising to 4.5% in May/June, and a CET1 ratio of 15.6% (16.8% look-through), well above the 14% buyback threshold.  However, the brokerage expects the gross margin to decline to 80bps in H2-2025 as market volatility fades, before recovering to 82bps through 2028. Despite the acceleration in net new money, Barclays maintained a cautious stance, projecting 3% for full-year 2025, citing limited visibility and recent relationship manager departures.  While Barclays’ forecasts for net new money align with company guidance, its AUM estimates fall below both consensus and the Capital Markets Day assumptions, as Barclays models no FX or market uplift from H2-2025 onward. Capital accumulation remains strong, but Barclays noted that excess capital is "trapped" amid regulatory uncertainty. It does not expect a share buyback before FY25 results, and models CHF 500m buybacks annually from 2026.  The ongoing credit review under a new Chief Risk Officer also presents risk, as does the ongoing FINMA probe. Julius Baer is currently trading at 13.3x P/E for 2025 and 11.3x for 2026, compared to a 10-year median of 11.3x and a 5-year median of 11.6x.  Relative to peers, it trades at a 29% premium to the SX7P index and a 19% discount to the SXFP index, near historical averages. Barclays said the stock does not offer a compelling discount given ongoing risks. Using a Dividend Discount Model with a 12% cost of equity and 2% growth rate, Barclays arrived at its CHF 56.70 target. This includes the present value of excess capital versus the 14% CET1 threshold.