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Shore Capital has reiterated its sell recommendation on HSBC Holdings PLC (LSE:HSBA, NYSE:HSBC), warning the shares' punchy valuation more than reflects the bank's confident outlook.

Analyst Gary Greenwood kept his 1,335p target price, implying 13% downside from the current level.

The trading comment follows a roundtable hosted this morning by chief financial officer Pam Kaur, at which management said HSBC continues to trade well across most of its businesses.

Wealth client acquisition remains healthy and Trade Finance continues to gain share, with no evidence that recent Chinese regulatory measures are hitting customer behaviour or demand.

In the UK, management is prioritising relationship-led growth over pricing, pointing to HSBC's international banking franchise as a key differentiator.

Shore Capital said management's broader message was that the market may be underestimating the sustainability of earnings growth, citing a growing contribution from fee income and an enlarged $637 billion structural hedge that is reducing sensitivity to interest rates.

However, the broker cautioned that HSBC is currently benefiting from what management itself described as an optimal interest rate environment, with rates of 3% to 4% supportive of both economic activity and bank profitability.

Shore Capital said this backdrop remains unusually favourable and may prove difficult to replicate through the cycle.

The broker also flagged HSBC's capital allocation hierarchy, which places dividends first, growth second and buybacks third.

Prioritising a targeted 50% payout ratio ahead of buybacks suggests management does not view the shares as materially undervalued, Shore Capital said.

Returning around half of earnings to shareholders rather than reinvesting them also points to limited opportunities to deploy capital at returns materially above the cost of equity, the broker added.

On its estimates, HSBC shares trade on a 2026 forecast price to tangible net asset value of around 2.1 times for a return on tangible equity of about 18%, a valuation Shore Capital said assumes today's elevated profitability can be sustained over the long term.

While management is taking sensible steps to improve the durability of earnings, Shore Capital said it remains less convinced that cyclicality has disappeared from the business.

Even higher near-term returns would be required to compensate for periods of potentially lower future profitability, the broker said.

HSBC shares have risen 62% over the past 12 months, according to the note.

The bank reports third-quarter results on October 27.

HSBC Holdings PLC's (LSE:HSBA, NYSE:HSBC) return to share buybacks was deemed a bit on the small side, despite the Asia-focused lender's stronger-than-expected quarter and improving business momentum.

The FTSE 100's largest company announced a $1 billion buyback alongside a 60% rise in second-quarter pre-tax profit to $10.1 billion.

It was the first buyback since HSBC paused repurchases to fund its acquisition of the remaining shares in Hang Seng Bank in October.

Jefferies analyst Joseph Dickerson called it a "modestly lower buyback than we expected", which "may underwhelm". He had pencilled in $2 billion, a figure he said appeared to match investor expectations, although there was no formal consensus forecast.

UBS had also expected $2 billion. Analyst Jason Napier said he was "surprised" the return was not bigger given the strength of HSBC's first-half performance.

The disappointment looks more about restrained ambition than weak trading, the analysts suggested.

Second-quarter profit excluding notable items beat company-compiled consensus by 5%, as income came in ahead of expectations and operating costs remained in line.

Loans increased 5% at constant currency, led by corporate and institutional banking and the UK business. Wealth income excluding net interest income rose 21%, while net new money increased 8%.

"The direction of travel for consensus estimates looks to be slightly upwards following a 6% PBT beat in Q2 with notable balance sheet growth," Dickerson said.

HSBC also raised expected savings from its restructuring to $2 billion from $1.5 billion. However, management flagged higher variable pay in the second half and investment intended to support revenue growth in 2027.

The bank strengthened its interest income guidance only slightly, from "around" $46 billion to "at least" $46 billion, while leaving its longer-term targets unchanged.

UBS retained its 'neutral' rating and 1,520p target, noting that HSBC is already valued at 2.2 times tangible book value.

Napier said: "In short, HSBC is performing better than consensus forecasts but didn’t deliver the Banking NII or buyback we’d forecast and, with targets unchanged and higher costs flagged won’t, we think, force a market rethink on the financial outlook today."