Broker tips: Moneysupermarket, HSBC, G4S

The bank said it had been positive on the stock since initiating on it last year, but that uncertainty has been building in the last nine months, mostly due to elevated competition.

“The Brexit vote and a likely recession in the UK is now a new uncertainty, and one too many for us,” it said.

“We do see areas of cyclicality in the Moneysupermarket business model, notably in Travel Supermarket, travel insurance in Insurance, and credit cards in Money. At this point, it is hard to model the precise impact of the downturn on numbers – our first attempt is to put through a 9% EPS downgrade in 2017E.”

The bank added that it sees clear risks to consensus for next year.

It wasn’t all doom and gloom, however, with positives in the form of a likely special dividend at end-2016 and benefits from the capex programme still to filter through, Barclays said.

“But we no longer have confidence in positive forecast momentum, and on 17.7x 12 month forward P/E, the shares are only slightly below their historical average relative to the FTSE250.”

Barclays said that while the valuation already captures the risks, it struggles to argue for a re-rating from here, hence the downgrade.

Investec downgraded HSBC to ‘sell’ from ‘hold’ and cut the price target to 425p from 450p.

The brokerage argued that former HSBC CEO Mike Geoghegan played a key role in the UK’s decision to leave the European Union, articulating his view of a clear business-positive impact from Brexit.

Investec noted that since 23 June, HSBC shares haven risen 3%, while the FTSE 100 has gained 4%. HSBC’s peers, however, Lloyds and Barclays, are both down 25%.

“HSBC’s shareholders must be suitably grateful; unlike most UK banks HSBC has participated in the ‘Brexit bounce’ - a 4-day 10% rise in the FTSE 100 index.

“But in our view, a now likely cut in UK interest rates, with assumed negative loan growth, pushes out HSBC’s 10% return on equity aspiration to 2020e. We expect the share price to retrace.”

The brokerage expects UK interest rates to be cut by at least 25 basis points, probably in August or sooner, and argued that “lower-for-even-longer” interest rates will put further pressure on HSBC’s net income margin.

G4S shares fell on Monday as Jefferies reiterated a ‘underperform’ rating on the stock and cut its target price to 157p from 160p.

Jefferies said a slowdown in emerging market economies, the Brexit vote and tragic events in Orlando have created stumbling blocks for the security sector.

“The security industry has proven resilience and G4S is commendably refocusing on a higher quality core, but recent events create headwinds,” Jefferies said.

Jefferies downgraded its earnings per share estimates for 2016 and 2017 by 7% and 8% respectively. The broker said risks include political changes, delayed bid timetables, contract mobilisation and dislocation in some emerging market countries as global carry trades unwind.

Jefferies suggested a £240m equity placing would derisk the balance sheet and allow attention to return to long-term value drivers.

"A 9.99% placing at 157p would raise c.£240m, reducing net debt/EBITDA to 2.7x at year end and a far more comfortable 2.2x in December 2017."