Broker snap: Nomura prefers HSBC and StanChart among UK banks

Nomura has reviewed its ratings in the UK banking sector, reiterating its preference for emerging markets-focused lenders HSBC and Standard Chartered, both rated 'buy'.The broker said it continues to have a "defensive/growth bias" within the sector and believes that both HSBC and StanChart are "well-positioned to deliver growth or free cash flows to shareholders" with price-to-earnings multiples (on 2014 estimates) of 9.6-9.7."The growth rates implied by valuations of these banks are c. 0-1%, whereas we expect revenue growth in excess of c. 5.0% at HSBC and c. 8.0% for STAN," Nomura said.Analysts said that growth momentum in Asia may "ebb and flow" throughout the year, but the risks of a 'hard landing' in China have reduced. Even if Chinese gross domestic product (GDP) growth this year is around 7.3% (instead of 7.7%), Nomura said that this rate of expansion is substantially higher than any seen in Europe.As for the wider sector, the broker said that dynamics remain fluid with the STOXX Europe 600 Banks Index underperforming the market through results season at a time when US equities are making new highs."European banks, being cyclicals, cannot continue this underperformance in the face of positive US and Asian GDP trends, so we continue to be cautiously optimistic on the sector in the near term. "Strategically though, given the amount of deleveraging required in the private sector in Europe, along with the fiscal austerity yet to come, we remain cautious and view rallies as selling opportunities."For the domestic banks, Nomura rates all three majors as 'reduce' but prefers Barclays over Lloyds and Royal Bank of Scotland."We saw c. 10% upside from restructuring at Barclays, which has now come through, but the capital markets environment along with US GDP growth trends appear to be improving, which is a positive for the name. The group faces long-term structural issues, but in the near term, it would benefit from these improving trends."BC