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Broker tips: Cineworld, GCP Student Living, HSBC, Standard Chartered

By Iain Gilbert

Date: Monday 01 Jun 2020

Broker tips: Cineworld, GCP Student Living, HSBC, Standard Chartered

(Sharecast News) - Cineworld shares slid on Monday as Morgan Stanley downgraded the stock to 'underweight' from 'equal weight' and slashed the price target to 60p from 180p, arguing that the recent relief rally was overdone.

MS noted the shares are up 64% in the last week, reflecting a combination of relief that cinemas are set to open in July, and the securing of extra liquidity, covenant waivers and extensions.

However, it said Covid-19 has accelerated structural risks from premium video on demand (PVOD), weakened the bull case, lowered the attractions of the proposed Cineplex deal and raised leverage. MS said it is bearish on the prospects for the H2 and 2021 slate.

The bank said the short-term impact of Covid-19 has been to close cinemas across the entirety of Cineworld's North American and European estates. It also appears to have accelerated what MS sees as the primary structural risk to exhibitors: studios experimenting with PVOD.

MS also said its refreshed sensitivity analysis shows a $60-180m EBITDA risk from PVOD, worth up to 27% of FY21 EBITDA.

Analysts at Berenberg lowered real estate investment trust GCP Student Living from 'buy' to 'hold' on Monday, citing "significant headwinds" stemming from the Covid-19 pandemic.

With the COVID-19 crisis now likely to affect the start of the 2020-21 academic year in September, Berenberg thinks there are potential risks for GCP.

"In our view, there are a number of likely headwinds, including a reduction in premium room rates in buildings designed to cater for international students due to a fall in enrolments," said the analysts, who also lowered their target price on GCP from 180p to 130p.

While the German bank expects demand to bounce back strongly due to the London weighting of GCP's portfolio, in the short term, with the group's Scape Canalside acquisition terminated and a slowdown in rental growth likely, it also anticipated that the firm's dividend will remain "significantly uncovered and unsustainable" at current levels.

"As a result, we lower our price target to 130.0p (from 180.0p) and downgrade GCP to 'hold' (from 'buy')," concluded Berenberg.

Jefferies has downgraded its recommendation for HSBC to 'hold' as unrest over the future of Hong Kong continues to mount.

The bank, which previously had a 'buy' recommendation on HSBC, said its stock selection preference had switched to Standard Chartered instead, which it upgraded to 'buy' from 'hold'.

It said that Hong Kong commercial real estate represented only 15% of common equity at Standard Chartered, as opposed to 45% of group equity at HSBC.

It continued: "Stress-testing of Standard Chartered and HSBC's Hong Kong exposure shows a 2x greater capital impact at HSBC. For HSBC, our balance sheet burndown analysis on Hong Kong exposures estimates a 140bps group CET1 impact, from a bottom-up 6% (or $18bn) cumulative loss - higher than the 4.4% industry loss seen during Asian financial crisis - on Hong Kong exposures.

"At Standard Chartered, a similarly constructed analysts estimates a 70bps group CET1 impact from a bottom-up 4% ($3.2bn) cumulative loss on Hong Kong exposures.

"Put another way, a 10% haircut on Hong Kong commercial real estate loans at HSBC would be $6.8bn, or about 30% of our 2021 group pre-provision profit estimate."

Jefferies believes HSBC can generate an 8% return on total equity by 2022, but its adjusted pe-tax profit estimates for 2020/21 fall 38% across all lines.

"Against higher execution risk, the 8% upside to our price target is not enough to justify a 'buy', nor is the risk/reward set-up attractive," the bank concluded.


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