Broker tips: HSBC, Shire, Aviva

It noted that since 11 August when the PBoC unexpectedly weakened the renminbi, HSBC’s share price has dropped 15-20%, equivalent to a decline of around $30bn in market cap.

“We believe the market has de-rated the Asian franchise to a multiple of just 1.2x tangible book for a business that we expect to make a 16% return on tangible equity this year. The headline yield of 6.8%, which appears sustainable, also now provides support,” UBS said.

The Swiss bank continues to believe that within the HSBC group, there are a number of attractive, high return businesses, highlighting commercial/retail banking in Asia/UK.

UBS cut its price target to 550p from 595p to reflect earnings downgrades and a lowering of the multiple applied to the group's Asian business to 1.6x tangible book from 1.8x.

HSBC upgraded Shire to ‘hold’ from ‘reduce’, noting that the shares have fallen below its unchanged price target of 4,734p.

Nevertheless, the bank said it remains concerned about the potential downside risks from a delay to approval of the lifitegrast drug, or, to a lesser extent, an outright rejection from the Food and Drug Association.

The bank is also still concerned about the strategic rationale, potential dilution and ability to execute on the proposed all-equity acquisition of Baxalta.

“Given the all-equity nature of the deal, we are not convinced that it could be successfully concluded; if it were to be, Shire would need to integrate and cost cut through an acquisition target on a scale that it never done before,” said HSBC.

It added that US political headlines regarding drug pricing may also negatively affect companies such as Shire.

Aviva got a boost on Wednesday as Charles Stanley upgraded the stock to ‘accumulate’ from ‘hold’.

“While we have doubts over the group’s long term strategic positioning, the stock appears too cheap to ignore at current levels, trading on under 8x FY17 operating EPS and offering a FY17 yield of around 6.5%,” it said.

Charles Stanley added that it sees a possible 40%+ total return opportunity to its 590p price target on an 18-24 month view.

The brokerage said management remains confident of delivering overall run-rate synergies of £225m per annum from the integration of Friends Life, which should drive robust EPS growth from full-year 2015.

“Cash flow has been enhanced by the Friends Life acquisition and should support double-digit per annum growth in the dividend over coming years, building on the 15% increase in the interim dividend,” it said.