Numis upgrades HSBC to 'buy', says 'short squeeze' possible

Analysts at Numis have upgraded their view on shares of HSBC following the lender's first quarter results.

They also cautioned clients that there was a risk of a 'short squeeze' in the stock at some point.

The analysts upgraded their recommendation from 'add' to 'buy' and hiked their 12-month target price from 465.0p to 525.0p.

Of the latter, roughly 50.0p per share reflected a 10.0% upward revision to their estimate for HSBC's full-year normalised free cash flow.

Another 10.0p meanwhile was the result of the higher expected dividend payouts between 2021-23 and Numis's projection of greater excess capital at the end of 2023.

According to the analysts, th elender's net interest margin would bottom in the second quarter of 2021, before initiating a gradual recovery.

"The speed and scale of this will be largely rate dependent, but with medium-term rates already rising we believe the risk is to the upside. With loan growth recovering to c4% per annum we believe net interest income should comfortably grow at 5-6% from 2022E, driving total revenue growth of at least 4-5%," they explained.

Assuming a dividend yield of 3.6%, the total shareholder returns on offer was about 23%, they said.

"With many investors structurally underweight HSBC, reflecting the amount of stock held by Ping An (8%) and Hong Kong retail investors (c.30%), we believe there is the risk of a squeeze in the share price at some point."