#Europe Markets: February off to a strong start for European stocks, thanks to UBS

The euro
EURUSD,
+0.22%
and British pound
GBPUSD,
+0.42%
each rose on dollar weakness
DXY,
-0.16%
and as investors looked ahead to European Central Bank and Bank of England meetings Thursday. While few expect the ECB to tighten policy, the Bank of England is widely seen rolling out back-to-back interest rate hikes, after a surprise rate rise in December.

Banks were driving the gains for Europe, with shares of UBS
UBS,
+6.53%
up 6.8% for its best one-day gain since May 2020. The Swiss banking giant reported fourth-quarter net profit of $1.35 billion, which beat analysts expectations from a company compiled consensus, and set ambitious new growth targets as part of a strategy update.

The commitment of “up to $5 billion in buybacks” was confirmed as a full-year target, noted a team of Citi analysts led by Andrew Coombs. “We already forecast larger buybacks than consensus and yet UBS surpassed even our expectations,” he said.

“UBS is one of our three top-picks among EMEA banks (alongside BNP & Lloyds). We see no reason to change this view based on strong earnings momentum, attractive yield, respectable top-line growth and M&A optionality,” said the Citi team.

UBS prove the tide that lifted all other banking stocks, with HSBC
HSBC,
+2.95%

HSBA,
+2.82%
up 3%, Lloyds
LLOY,
+1.96%

LYG,
+1.82%
up more than 2% and Barclays
BARC,
+1.21%

BCS,
+0.92%
up 1%.

European gaming companies were in focus after Sony
SONY,
-0.22%

6758,
+0.39%
on Monday announced plans to buy videogame publisher Bungie for $3.6 billion. Analysts had been expecting an M&A wave after Microsoft’s $69 billion bid for Activision Blizzard
ATVI,
+0.23%
 for $69 billion and Take-Two
TTWO,
-2.70%
Interactive’s $12.7 billion deal for Zynga
ZNGA,
-0.39%.

“We don’t see the TTWO/ZNGA deal as having a European readacross. The MSFT/ATVI and SonyBungie deals do have a clear theme however: we see them as building a content portfolio to drive hardware (the old console war) and increasingly subscriptions (the new one) and ultimately cloud gaming/streaming,” said Jefferies equity analyst Ken Rumph and equity associate Lyra Li, in a note to clients.

“That implies a high value being placed on AAA-skilled staff and AAA/blockbuster IP (including extensive back catalogues, which bulk out subscription offerings),” they said, noting that Ubisoft and CD Projekt are possible European examples of this. “AAA games” is a video gaming industry classification for high-budget and high-profile games, often produced by big players.

Shares of Ubisoft Entertainment
UBI,
+2.60%
rose 2%, while CD Projekt
CDR,
-0.43%
fell 0.7%.

On the downside, Proximus shares
PROX,
-3.56%
fell more than 3% after Citi analysts downgraded the Belgian telecommunications group, saying recent share outperformance as the company deals with elusive domestic growth and inflationary cost pressures.

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