Broker tips: HSBC, TalkTalk, BP

Investec downgraded its recommendation on HSBC stock to 'sell', telling clients that prospects for a "substantial" share buy-back were already in the price and its valuation was now stretched.

That did not mean that the lender had not made genuine progress.

Indeed, the broker's Ian Gordon believed 2017 would mark a "trough" year.

"It would be churlish not to acknowledge a number of areas of genuine improvement. We believe that after a decade of decline, HSBC is finally showing genuine ambition to expand its balance sheet, (+1% in Q1 2017), albeit it still appears over-dependent on Hong Kong, which contributed 52% of group PBT in Q1 2017," Gordon said.

However, the scale and pace of recovery might yet underwhelm the market, he said.

Neither did Gordon believe that HSBC's target for return on equity of 10% could be realistically achieved before 2020.

Berenberg downgraded its stance on TalkTalk to 'sell' from 'hold' and slashed the price target to 140p from 224p saying the company has a mountain to climb to get back to sustainable profit growth.

The bank said TalkTalk ranked ninth out of nine in its consumer broadband survey, scoring poorly for churn risk, network quality and customer service, value-for-money and customer endorsements. In its mobile survey, the group ranked seventh out of 10, but still scored poorly on network quality, customer service, customer endorsements and Ofcom complaints.

"The results suggest that TalkTalk faces significant challenges to bring down churn on a sustainable basis," Berenberg said.

The bank said its survey results suggest TalkTalk will face cost risk as it tries to bring down churn on a sustainable basis. It also showed the company is not a “go-to” destination for other operators churning customers, a status that will be difficult and costly to change.

Analysts at JP Morgan reiterated their 'overweight' stance on shares of BP despite their "cautious" outlook for the price of oil.
They also stuck to their 530.0p target price.

Christyan F Malek, Matthew Lofting and Dhanush Arun referenced their "strengthened" conviction that BP's financials would reach an inflection point in the second half of 2017.

Above all, they touted the company's "best-in-class" organic cash breakeven of $30.0 a barrel by 2020, which would position the stock as the most defensive against the investment bank's outlook for the oil price.

More specifically, they expected the outfit's free cash flow to jump from $900.0m during the first quarter of 2017 to $1.8bn in the fourth quarter.

Continued improvement in its free cash flows through 2018 should, they said, compress the "premium" 7.0% dividend yield.