Investec downgrades HSBC, recommends taking profits in June

Investec downgraded HSBC to ‘hold’ from ‘buy’, pointing to just under 1% residual upside to its unchanged 450p price target.

“Our continuing belief that HSBC can, should and will maintain an (uncovered) 51c dividend, an implied 2016e dividend yield of 7.9% is, by itself, insufficient to sustain a ‘buy’ recommendation,” the brokerage said.

“However, we believe that June could offer a number of potentially positive catalysts (Brazil disposal, Fed/Brexit decisions) which may generate profit-taking opportunities.”

Investec said that in both relative and absolute terms, HSBC has performed resiliently over the past few weeks. It said this may represent an element of anticipation of forthcoming events such as the Brazil disposal due to complete this month and a potential increase in US interest rates, which would be a net positive for the bank.

However, the brokerage said the twin challenges of an ongoing drop in net interest margin and declining customer loans make HSBC’s 10% return on equity target unrealistic.

Investec said it continues to see better value in the challenger bank space generally, and for Aldermore in particular, which it rates at ‘buy’.

At 0811 BST, HSBC shares were up 1.3% to 452p.