Broker tips: HSBC, Hikma, Pearson
Berenberg upgraded HSBC to ‘buy’ from ‘hold’ on Wednesday, keeping the price target at 780p, as it said the bank’s return on tangible equity of around 13% and attractive growth potential are undervalued.
"HSBC’s footprint is structurally attractive," Berenberg said. "As well as providing the bank with access to faster-growing markets, HSBC’s global presence means it is well placed to provide high-returning transaction banking services for global corporates.
"This structural strength was previously eclipsed by cyclical headwinds and uncertainty related to HSBC’s restructuring. More recently, however, higher interest rates have supported HSBC’s returns and risks from restructuring are now modest."
Berenberg said that strengthening activity, particularly in Asia, provides further cyclical support, and growth can be supported further by the bank’s recent investments.
RBC Capital Markets lifted its price target on Hikma Pharmaceuticals to 2,050p from 1,950p as it reiterated its ‘outperform’ rating.
The bank noted that price erosion is moderating in the US generics market largely due to improving supply side dynamics.
"As a result Hikma has raised guidance for the Generics division to close to 20% revenue growth from low double digits.
"However, exchange rates in the MENA region have deteriorated further (particularly Egypt) which will negatively impact the branded division.
"We update our model for improved pricing in Generics and latest exchange rates in MENA, resulting in modest forecast changes."
JP Morgan kept its 'overweight' rating on Pearson, arguing that the educational publisher is not as exposed to the potential threat of artificial intelligence as some of its rivals.
Shares in education services specialists fell sharply on Tuesday after US firm Chegg warned about the impact of ChatGPT on its homework help services. It tumbled 48%, while London-listed Pearson shed 10%.
But JP Morgan - which has a target price of 1,230p on Pearson - said in a note: "While ChatGPT could be seen as an alternative for students seeking answers to their homework, we do not see it as an alternative to Pearson’s text books, courseware and learning platforms that provide trusted programmes that are adopted by colleges, and have to be followed and consumed by students for around 70% of higher education courses.
"The difference is that Pearson provides the content and sets the questions, whereas Chegg and ChatGPT provide answers to those questions.
"In our view, ChatGPT/AI will not provide complete and structured learning programmes with trusted content."