ii view: giant HSBC becoming more agile and decisive
Courting Asia’s wealthy and offering a highly attractive dividend yield. We assess prospects for this FTSE 100 heavyweight.
28th November 2024 15:47
by Keith Bowman from interactive investor
Third-quarter results to 30 September
- Revenue up 5% to $17 billion (£13.4 billion)
- Net profit up 9.2% to $6.1 billion (£4.8 billion)
- Capital cushion or CET1 ratio of 15.2%, up from 15% in Q2
- Third interim dividend of $0.10 per share
Guidance:
- Continues to expect full-year net interest income of around $43 billion
- New share buyback programme of up to £3 billion
New chief executive Georges Elhedery said:
"We delivered another good quarter, which shows that our strategy is working. There was strong revenue growth and good performances in Wealth and Wholesale Transaction Banking.
“Our strong organic capital generation enables us to announce a further $4.8 billion of distributions in respect of the third quarter, which bring the total distributions announced so far in 2024 to $18.4 billion.”
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ii round-up:
Founded in 1865 in Hong Kong and now headquartered in London, HSBC Holdings (LSE:HSBA) serves around 41 million customers across more than 50 countries and territories worldwide.
The bank currently operates three divisions: Wealth and Personal Banking, Commercial Banking, and Global Banking and Markets. Under new head Georges Elhedery, and come 1 January 2025, it plans to change to four divisions.
A new Hong Kong division will comprise “Personal Banking” and “Commercial Banking.” A new UK division will follow the same structure with personal banking brands including First Direct and Marks & Spencer Bank. The two remaining divisions will be Corporate and Institutional Banking, and International Wealth and Premier Banking.
For a round-up of these latest results announced on the 29 October, please click here.
ii view:
HSBC is one of the world’s largest banking and financial services organisations. A stock market value of around £130 billion stands comfortably ahead of UK headquartered rivals Barclays (LSE:BARC), NatWest Group (LSE:NWG) and Lloyds Banking Group (LSE:LLOY) all at under £40 billion each. Geographically, Hong Kong generated most revenues during 2023 at 31%, followed by the UK at 17%, France and the USA each at around 6%, and other countries the balance.
The new CEO joined HSBC in 2005. A former Global Markets executive, he has extensive trading experience in London, Paris and Tokyo. His plans include increasing the bank’s leadership and market share in areas where it has competitive advantage, delivering best-in-class products and customer service, as well as creating a simpler, more dynamic, more agile organisation with clearer lines of accountability and faster decision making.
For investors, political tensions between the West and China remain elevated, with President elect Trump now threatening to increase trading tariffs. Economic growth and the outlook for China and Hong Kong remain challenged. Cost growth of 5% for 2024 compared continues to be forecast by management, while an estimated price-to-net asset value of 1 compares to ratios of around 0.6 times and under for Barclays and Deutsche Bank AG (XETRA:DBK), suggesting potentially better value elsewhere.
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More favourably, a new divisional structure aims to increase efficiency and reduce costs. A drive toward fee-based businesses and away from more volatile interest income is being made. Bad debts of $1 billion this latest quarter was down from $1.1 billion a year ago, while HSBC’s balance sheet remains robust with the Capital cushion, or CET1 ratio of 15.2% exceeding management’s medium-term target range of 14% to 14.5%.
On balance, and despite ongoing risks, a consensus analyst fair value estimate above 820p per share and forecast dividend yield of more than 7% continue to generate optimism for the longer term.
Positives:
- Robust balance sheet
- Attractive dividend yield (not guaranteed)
Negatives:
- Uncertain economic outlook
- Heightened political tensions between the West and China
The average rating of stock market analysts:
Cautious buy
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