HSBC PLC edges lower as Goldman Sachs cuts target price, estimates in wake of

PLC () saw its shares edge lower on Monday reduced its target price and estimates in the wake of the global banking giant’s recent second-quarter results although it retained a ‘buy’ rating on the stock.

The US bank cut its target back by 7% to 525p from 565p, with the shares currently trading at 325.25p, down 0.1% on Friday’s closing price. It also reduced its 2020 EPS estimates for the FTSE 100-listed lender by 23%, mainly driven by higher risk costs, and forecasts by 2021-2024 were cut by around 8% to reflect a weaker revenue outlook.

READ: HSBC weak as it posts a 65% drop in first-half pre-tax profit with bad debt provisions hiked for coronavirus pandemic

In a note to clients, the Goldman analysts said: “The main takeaways of 2Q20 results were (i) guidance for lower NII, (ii) higher-than-expected risk costs of $3.8bn ($2.7bn company-compiled consensus), with raised FY20 risk costs guidance to $8-13bn (prev. $7-11bn), and (iii) better capital progression, with a CET1 ratio of 15.0% (vs. consensus at 14.4%) with the group now comfortable to run within the lower 14-14.5% target range.”

They added: “We lower our earnings and dividend estimates to reflect the weaker revenue guidance. With that, we believe is at or close to its P&L inflection point, as (i) the full impact of low rates and flat yield curve is now reflected, (ii) costs are expected to trend lower (vs. FY19) and (iii) absent a major deterioration in economic outlook, impairments should reduce.

“Further, we see HSBC as well-positioned to weather the economic cycle, given (i) our Economists forecast Asia to experience a shallower contraction than the West in 2020, followed by a rebound in 2021 of similar magnitude, (ii) its resilient balance sheet, and (iii) restructuring, which is progressing apace and provides capacity to absorb credit migration.”

The analysts concluded: “We reiterate our Buy rating as we continue to see HSBC’s valuation as attractive, trading at 0.6x TBV for a c.9% 2022 ROTE, with a DY of 9% from next year.”