Broker tips: HSBC, Hammerson, Debenhams

After shares in HSBC endured a 12% year-to-date underperformance compared to UK domestic banking peers, analysts at Credit Suisse upped their rating and price target on the stock.

Taking a fresh look at the lender after a 2017 where growth was "not exceptional", the analysts upgraded the Hong Kong and Shanghai lender to 'neutral' from 'underperform' in a note to clients on Thursday, adding 10p to its target price to take it to 690p.

With HSBC's risk/reward seen as becoming "more fairly balanced" approaching a strategy update scheduled for around 6 August, and amid recent intervention by the Hong Kong Monetary Authority to support that nation's currency and boost the Hong Kong interbank offered rate, the analysts predicted a 3% boost to the bank's net interest income, providing it with further share price support.

Following a recent trip to Asia, the analysts saw HSBC's focus is on expansion throughout Asia, with underlying franchise development, rather than favourable rates/equity markets, driving growth.

CS said that HSBC's results "should be reassuring" to investors, but noted that no buyback announcement was expected just yet and did not anticipate any exceptional news ahead of its strategy update.

Elsewhere, Hammerson's board is likely to be ousted after turning down a bid approach and scrapping their own takeover of Intu, Jefferies analysts said on Thursday as they upgraded the FTSE 100 shopping centre operator to 'hold'.

On 18 April Hammerson said it would no longer recommend its £3.2bn takeover of rival Intu to shareholders, effectively scrapping the deal. It announced the decision three days after Klepierre withdrew its £5.04bn indicative offer to buy Hammerson, which rejected two approaches from the French company.

Having withdrawn its increased 635p a share proposal, Klepierre is barred from bidding for Hammerson for six months but could return, by which time Hammerson may be under new management. Jefferies calculated that buying Hammerson could add to Klepierre’s earnings at a price of up to 750p a share.

The Jefferies analysts said: "We have upgraded HMSO [Hammerson] to 'hold' as, having jilted Intu at the altar, the HMSO board's position is now untenable and facing a Martin Sorrell day of reckoning."

While upgrading Hammerson from 'underperform' the analysts increased their price target to 540p from 400p. They cut their price target for Intu to 155p from 175p and maintained their 'underperform' rating.

Analysts at Canaccord Genuity stood by their 'hold' recommendation for Debenhams on Thursday, despite the multiple 'red flags' for the company as a result of its high operational, financial and seasonal gearing.

"The volatility of earnings is high and the balance sheet is not as strong as it should be for a business with these characteristics," they said.

Earlier, the department store brand had blamed the adverse weather seen across the UK this winter for the 2.2% drop in like-for-like sales for the 26 weeks leading up to 3 March, while its profits fell 84% to £13.5m.

Nevertheless, the Canadian broker conceded that: "Debenhams has held its clothing market share in a difficult market. This suggests to us that the consumer proposition is viable. Combining this with a 7x cal. 18E PE and 7% yield keeps us at Hold."

The company's 'redesigned' strategy is having an encouraging effect on the business despite the disappointing financials, the broker argued, adding that new initiatives had improved the customer proposition and increased the business's flexibility and efficiency.

Similarly, analysts at RBC stood by their 'sector perform' recommendation on the stock but were more cautious regarding the company's valuation.

In their opinion, Debenhams was likely to continue to be impacted by structural pressures, including competition from well-merchandised speciality and online retailers.

In a research note sent to clients, their analysts said: "We think Debenhams' results highlight the importance of having a strong online and multi-channel offer. Our preference in the sector is Next for its online growth story, helped by its fast, highly automated systems. Debenhams, on the other hand, has seen its range advantage eroded over time by the likes of Amazon and has been excessively promotional recently in our view."

They went on to say that, while Debenhams' valuation is low, "Debenhams has a very mixed track record, and we think some other UK stocks are better positioned right now and offer more upside."