Investec PLC (LON:INVP) has received a big target price upgrade from HSBC even though it says the South African bank is underperforming and deserves a discount rating.
Rises in stock markets recently have boosted the asset management divisions and some strength in the rand against the pound has prompted HSBC to raise its target to 710p from 580p, even though it reckons returns in its banking businesses are not acceptable.
It estimates after-tax return on equity of the combined banking businesses was 10.2% in the first half of this financial year and that is simply too low given Investec’s strength in South Africa says the broker.
The UK bank, meanwhile, lacks scale and though investment is underway to rectify this HSBC is sceptical it can manage the necessary improvement given the growing competition from challenger banks and others.
But everything has a price and HSBC says it has taken a very conservative view in its valuation with a rating of 0.6 times book value to give the current target price.
And in spite all of its reservations there is fundamental value in the bank, says HSBC, hence a 'buy' rating.
Shares were flat at 569.5p.