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Broker spotlight: Deutsche Bank turns positive on HSBC

Published: 11:10 30 Sep 2015 BST

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Banks may not be much loved by the great British public, but Deutsche Bank (the clue’s probably in the name) has turned positive on HSBC.

The emerging markets-focused bank’s share price has fallen 15-20% since the People’s Bank of China sprung a surprise and signalled a desire to see its currency’s weaken.

Deutsche Bank (DB) reckons the fall has gone far enough, with the market de-rating HSBC’s Asian franchise to a multiple of just 1.2 times tangible book value; that’s for a business that DB expects to make a 16% return on tangible equity this year.

On top of that, the company’s dividend, which DB reckons looks sustainable, is an enticing 6.8%, though this will decline to 5% following the scrip issue.

The relative risk/reward balance on the shares has shifted to the upside in DB’s opinion, so it has upgraded HSBC (LON:HSBA) to ‘buy’, even as it lowered its target price to 550p from 595p.

“While there are head winds and limited obvious catalysts in the short term we do now see value in the shares,” the German bank said.

Numis has been doing a bit of homework on Learning Technologies Group (LON:LTG), the e-learning specialist that revealed yesterday it had moved into the red.

The company’s house broker said the interims were strong, with revenues up 29%, underlying earnings up 4% and the dividend up 67%.

Nevertheless, it is sticking to its full-year profit before tax forecasts, which it says are conservative.

The broker sees scope for material upside as the group deploys it cash balance on acquisitions, plus there is always the possibility of the company receiving a boost from winning one or more of the major contracts for which it is in the running.

‘Buy’ is the recommendation, with a target price of 31p, some 8p above the current share price.

Sainsbury’s (LON:SBRY) trading update was longer on optimism than many had expected, while the numbers (for the 16 weeks to 26 September) were slightly ahead of the market consensus.

“The Q2 sales figures on a 2 year LFL [like-for-like] basis were down 3.9% but less negative on a 3 year basis -1.9%. Sainsbury’s total, ex. fuel, Q2 sales growth has narrowed the performance gap with Waitrose to within 1% from 6% last year, but this also shows how tough the UK grocery market is this year,” says Cantor Fitzgerald, which is a fan of the stock.

“The implication of this trend in 2016 is that most productivity cost savings could be used to fund the increase in the ‘Living wage’ cost increases,” it added, as it reiterated its target price of 312p. The shares currently trade 259.4p, up 13% on the day.

Elsewhere in the supermarket sector, Tesco (LON:TSCO) has had its target price chopped to 185p from 220p by Jefferies.

“We expect Tesco's 7 October interims to confirm some initial UK margin progress (even if the extent of upside will likely remain unclear for another 18 months), but relatively limited progress on organic cash flow,” the US broker said.

“We have reflected the impact of the Korean disposal (a high teens cut to our mid-term forecasts and a lowered 185p PT) and remain on the sidelines for now,” Jefferies added.

The same broker reckons yesterday’s shoeing of Wolseley (LON:WOS) following the building merchant’s trading update was overdone, and there now exists a buying opportunity.

The broker’s revised forecasts imply a three years compound annualised earnings growth rate of 9%, before the £300mln share buy-back, with the potential for a further £1bn of shareholders returns over the next three years.

Even so, Jefferies trims the target price to 4,650p from 4,750p.

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