Brokers backing HSBC as the preferred bank stock for income hungry investors

17th March 2014

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Brokers are backing HSBC as their preferred play in the UK’s banking sector and believe its share price drop is now a buying opportunity writes Philip Scott.

The bank, which reported a 9% hike in profit for 2013 to £13.6bn last month, has witnessed its shares slide by 17% over the past year, however its Asian competitor Standard Chartered, has endured a far steeper 33% fall over the same period.

The bank’s boss Stuart Gulliver has embarked on a plan, which includes culling significant parts of its US operations, along with other businesses around the world.

Helal Miah, investment research analyst at stockbroker, The Share Centre says: “It will concentrate on 22 countries, which will lead to more cuts in the work force and will help to achieve its target on return on equity of 12-15%.”

Though some analysts expect that progress may be slow, many see the shares as a safer option than other banks and are viewed as being more conservatively managed with a better balance sheet and deposits.

The consensus today among brokers is that the shares are a ‘buy’ with analysts at Berenberg Bank having just reiterated their ‘buy’ recommendation while Miah asserts that HSBC is his preferred play in the sector, and rates it a ‘buy’.

He says: “We consider it to be a more attractive option, especially for income seekers, and recommend investors to take advantage of the weakness in the share price.”

Income seekers in the banking sector have been walloped in recent years, as the likes of former dividend stalwarts such as Lloyds had to cut their payouts altogether after it needed to be rescued by the taxpayer funding during the financial crisis.

But HSBC has remained a significant payer, announcing a progressive dividend policy as a future aim and presently the shares carry a forecast yield of 5.4%.

Miah says: “The group is keen to promote the mix of business and geographical spread, especially the Asian franchise, which it hopes in the long run, will see it emerge from an environment it describes as ‘highly uncertain’. Like most banks, HSBC has seen pressure on returns from its assets, while costs have been creeping up, especially in Asia.

“Latest results announced last month raised doubts over the targeted return on equity and greater volatility is expected in its markets in 2014. So, investors should be aware that growth in the medium term is likely to be limited and we recommend drip feeding into the stock and building a holding over time.”

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