Broker tips: WPP, HSBC, GB Group

Credit Suisse upgraded WPP and Publicis on Wednesday to ‘outperform’ from ‘neutral’ as it said its analysis of the advertising agency industry suggests the structural headwinds which caused the de-rating of the agency stocks have significantly abated.

The bank lifted its price target on WPP to 1,260p and on Publicis to €87.

CS said the drag on organic growth from fast-moving consumer goods (FMCG) companies has all but disappeared and these companies are now investing more in marketing, as shown by Unilever’s increase in brand spend in its results for FY22.

The bank said in-housing continues but the model has shifted to working with agencies for the higher value creative, technology and consultancy services.

It also said the concern over consultancies expanding into media and creative has proved exaggerated and pointed out that Facebook and Google have not disintermediated agencies in media as the digital market has grown in complexity.

"While WPP and Publicis have recovered from trough multiples, if investors are convinced their long-term growth prospects have improved, we see potential for P/E multiples to expand to 13-14x versus 10.3-11.5x currently," Credit Suisse said.

Analysts at Berenberg hiked their target price for shares of HSBC, telling clients that the lender's guidance for net interest income appeared to be "knowingly" conservative and could be supported by non-interest income.

The day before, HSBC had left unchanged its guidance for fiscal year 2023 net interest income to come in above $36bn.

That was despite its 6% beat on NII for the last three months of 2022.

It also told analysts that the guidance was not an upper bound and that they did not need to adjust their estimates for full-year NII of $37bn.

That was also Berenberg's estimate, but they believed that to be "conservative" given, among other things, strong fourth quarter NII, together with favourable rate and currency developments.

In parallel, non-NII income for the fourth quarter had beat consensus by 5%.

Thanks to the easing of Covid-19 restrictions in the lender's key markets at the start of 2023 and the better environment for wealth and insurance activity, they judged further improvements possible.

Hence, they raised their estimates for HSBC's earnings per share and upped their target price from 625.0p to 780.0p, which would put the shares on about 1.15 times' their estimate of its tangible book value.

Nonetheless, they retained a preference for StanChart as it was trading on 0.6 TBV but offered faster EPS growth of 30% annually, against HSBC's 20%.

Their recommendation for HSBC was kept at 'hold'.

Analysts at Barclays cut their target price for shares of GB Group's full-year 2023 guidance.

In particular, they noted how the new more sombre outlook had come soon after an upbeat Capital Markets Day in January.

They estimated that the identity verification, location intelligence and fraud prevention company's guidance implied 2023 and 2024 earnings before interest and taxes of roughly £60m and £63m, respectively.

That put it about 10% and 13% beneath the Bloomberg consensus.

"The statement is no doubt disappointing soon after an upbeat CMD in January," they said.

"Positively, issues appear around over-optimism around macro and contract timing as opposed to a deterioration in win rates / customer retention, and we assume the Fraud and Location divisions, not mentioned in the statement, continue to trade well following their strong first halves."

Barclays reduced its target price from 480.0p to 420.0p but kept its recommendation at 'overweight'.