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(Sharecast News) - Shore Capital said on Wednesday that it was time to take profits on HSBC as it downgraded its stance on the bank to 'sell' from 'under review'.
The broker noted that HSBC delivered a stronger-than-expected Q2 result, with both income and profitability ahead of consensus, driven by continued strength in Wealth and Wholesale Transaction Banking fee income.
"Management modestly upgraded Banking NII guidance and announced additional simplification savings, prompting us to increase our FY26F-FY28F earnings forecasts by 4-6% and raise our target price to 1,335p (from 1,250p)," said analyst Gary Greenwood.
"However, while the outlook remains positive, we believe this is more than reflected in the current valuation. With the shares having rallied strongly since our upgrade to 'hold' following the Q1 results in May, our revised target price implies 16% downside, and we therefore downgrade our recommendation...and suggest investors take profits."
Greenwood noted the shares currently trade on around 2.3x end-Q2 TNAV of $9.36 (or 699p), which appears "excessive" relative to management's medium-term return on tangible equity target of 17%+ and Shore's assessment of sustainable returns.
"While HSBC remains a high-quality franchise, we see better value elsewhere in the sector, particularly among UK small and mid-cap banks trading at or below tangible book value," he added.
At 1110 BST, the shares were down 3.4% at 1,530.20p.
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