UBS downgrades HSBC to 'neutral' from 'sell'

UBS downgraded HSBC to ‘neutral’ from ‘sell’ but nudged up the price target to 540p from 535p, with modest capital downside offset by dividend yield.

The bank noted HSBC’s share price is up 17% in sterling since early August, adding $25bn to its market cap and prompting investor interest in the stock.

This puts HSBC’s forward price-to-earnings at its highest level since 2010, which UBS said was a healthy premium to relevant peers such as the Eurobanks sector and Citi.

“We see little in the operating environment and conversations with investors to justify a further re-rating of the stock in the near term.”

UBS said HSBC was not a ‘sell’ however, with recent results confirming progress on costs and sufficient confidence on capital to confirm plans to pay a 51 cents per share future dividend and launch a $2.5bn share buyback paid from the proceeds of the Brazilian disposal.

“On the analyst call management suggested, we think, that another buyback may be forthcoming if HSBC succeeds in releasing capital trapped in the US since the Capital One sale in 2012. In a world of low yields and capital concerns, we view decent income and non-UK exposure as attractive features of the stock.”

At 0932 BST, HSBC shares were up 0.3% to 561p.