Berenberg ups target for HSBC but prefers StanChart

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'.