Broker tips: Standard Chartered, Hays, IAG

Investec downgraded Standard Chartered to ‘hold’ from ‘buy’ with an unchanged target price of 820p.

It said the latest leg of Standard Chartered’s 26% eight-session surge appears to have been driven by market enthusiasm around media reports of plans to cut about 1,000 top staff.

“Although (if true) this may have potential to extend our own cost reduction forecasts, we caution that despite a raft of recent downgrades, consensus revenue/earnings forecasts remain far too high, in our view,” said the brokerage.

Investec noted that StanChart has an investor day scheduled for early December, during which new chief executive Bill Winters plans to outline his strategic vision, and to announce the bank’s capital decision.

“Sadly, we see it as both necessary and inevitable that management will signal material headcount reductions in order to rebase the group’s costs for a structurally weaker revenue outlook. Before then, a Q3 IMS is due on 3 November 2015 which will, we believe, primarily expose further extreme revenue pressures; we expect revenues to decline for a fifth straight quarter in Q3 2015e.”

Investec said it still regards the stock as slightly cheap but sees much clearer value elsewhere.

RBC Capital Markets upgraded Hays to ‘outperform’ from ‘sector perform’, saying the share price drop following the recruitment company’s results last week was overdone despite the slower growth outlook.

“Consensus forecasts now seems to be coming back to more achievable levels and while there are market concerns, driven by an uncertain economic backdrop, the stock has been hit hard. We feel the shares are beginning to discount these uncertainties,” it said.

RBC said the company's UK performance has clearly slowed of late and it expects this lower growth level to remain against tough comps in the short-term.

In addition, it said Australia remains volatile but with the mining/resources arena stabilising at the lower levels, it does appear in better shape, while Europe's momentum remains strong.

RBC cuts its target price to 150p from 160p as it downgraded its forecasts for the stock following the second quarter statement.

“However, the shares have fallen back from 173p in July and are now trading at a discount to this target. With a total return of 14%, as well as the potential for returns to shareholders in 2017E as the group returns to a net cash position, we move to outperform.”

International Airlines Group was set to see a marked and sustained improvement in its short and medium-term financial performance, prompting analysts at Goldman Sachs to reinstate their ‘buy’ recommendation on the carrier’s stock.

For 2015-2018 the company would generate €1bn a year in free cash flow, up from €242m over the period 2010-2014.

Similarly, its cash return on capital invested would rise to 16.7% in 2017 from 10% in 2014, the broker predicted.

However, the stock was trading on estimated EV/EBITDAR multiple of 5.2 times, instead of the 5.9 it had fetched on average since 2002.

Goldman set a 12-month target price of 755p on the shares, pointing out the company’s upcoming capital markets day on 6 November.