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HSBC has announced stronger than expected interim results thanks to excellent cost control (with annualised savings of $4bn) and credit risk provisions down 50% on last year and 38% lower than expected. Conversely, revenue was affected by the global slowdown and the negative impact of current low interest rates on interest income. We remain constructive about the share as the group’s investor day approaches: PLUS rating reiterated.
HSBC has issued slightly poorer than expected 2012 results, though its operating divisions have put up a strong showing. Management appears very relaxed about the outlook for the current year. There are good organic growth opportunities in higher growth markets, and the cost-cutting programme is likely to be increased by a billion dollars to $4.6bn. We reiterate our PLUS rating for one of the few banking groups that is likely to see growth in the near future.
HSBC’s reported results were fundamentally sound once various one-off items are stripped out, resulting in underlying pre-tax profit actually coming in 11% ahead of expectations at $6.3bn. Management delivered across the board on its strategic targets and voiced its confidence for the future. The US anti-money-laundering investigations are still hanging like a Sword of Damocles over HSBC, but the group has already set aside provisions of $1.5bn, which ought to cover the bulk of any reasonable fine. PLUS rating reiterated.
Even though its half-year results were significantly distorted by legal issues in the USA and the UK, HSBC still managed to generate operating profit of $12.7bn in H1 2012, slightly short of expectations, but still a very solid and ultimately reassuring outcome. The group is, above all, pressing ahead rapidly with its restructuring programme and, in spite of everything, capital is increasing by a few billion dollars each half-year. PLUS rating reiterated.
At the start of 2012, the management confirmed its 12-15% ROE target by 2013, backed by cost-cutting and revenues that remain robust, even if their growth will be lower than in 2011 (notably in China). The group’s new focus on commercial banking and redeployment of capital towards regions with higher potential will be much easier for HSBC because the group has already been established on its target markets for some time.
The operating profit for 2011 announced by HSBC is perfectly acceptable at $17.7 billion, although slightly short of the expected $18.5 billion. But the outlook is encouraging with confirmation of the cost-cutting target of $2.5-3.5 billion and a return on equity of 12%-15% between now and the end of 2013. This year has got off to a very good start and the management remains confident in the greater potential of exposures to the emerging markets. The valuation is still reasonable at 0.88x book value. PLUS code confirmed.
In the current environment, HSBC has confirmed its defensive qualities. The group has only relatively limited exposure to Continental Europe and the risks surrounding public debt and GDP growth in 2012. The growth of lending is also sure to slow in the emerging markets too; however, it will remain positive overall, while costs should fall at HSBC. The valuation remains in line with the quality of the balance sheet.
HSBC has published robust H1 results, with operating profit up 3% on 2010 at €11.5 billion. These figures vouch for the model of a geographically diversified bank with a balance sheet whose strength is universally recognised. For the future, the strategy of refocusing on emerging markets with higher growth potential, combined with an ambitious cost reduction programme, should further strengthen the group in all areas. PLUS rating confirmed.
We particularly appreciate the defensive qualities of HSBC in this period of macroeconomic instability in Europe. In parallel, the new strategic plan presented in early May, although not at all revolutionary, focuses on the main problem of the group: costs. The superior growth profile generated by emerging markets and outstanding solvency are qualities which justify the share’s slight premium against the sector.
HSBC has published (partial) earnings that are robust, but not particularly exciting. The BOP included non-recurring items worth $1.1 billion without which the consensus of $6 billion would have been achieved. However, the bank’s higher cost/income ratio is not satisfactory even if the business dynamic is good and the asset quality has improved. On Wednesday, the management will be announcing its business plan designed to bring costs under control. This is in fact the group’s only real weak point. PLUS code confirmed.
The 2010 results published by HSBC are fundamentally healthy (BOP $19.1 billion), even if the cost trend is disappointing (+9.6% year on year). However, some of this expenditure is in fact investment in future growth and the management has given a firm undertaking to keep the rest under control. The new LT ROE target (12-15%) is based on particularly conservative assumptions and the risk is more on the upside, especially at 1.2x shareholders’ equity. PLUS code confirmed in the medium term.
This morning, HSBC published fundamentally strong results for H1 2010. They were USD 1 billion better than expected, at USD 9.6 billion. The difference is largely attributable to distinctly lower provisions and the North American division’s return to profitability. Low interest rates continue to hold down net interest revenues, but the group is offsetting this with its strong business dynamic in Asia. Finally, the valuation will benefit from the upward revision of profit forecasts. PLUS code confirmed.
HSBC has defensive virtues, typified by its above average financial strength and abundant liquidity, combined with an attractive growth profile thanks to its diversified exposure to emerging markets. The group also has further potential for operational improvement following far-reaching restructuring of its North America division and cost-cutting measures. These qualities justify a premium against the sector.
This morning HSBC published results which were fundamentally robust although below expectations. Following the strong performance of this share in the past two weeks in anticipation of this publication, today’s weakness is understandable, even if it is clearly overdone. The HSBC business model is still first class and the quality of its balance sheet better than average for the sector. That is confirmed by the payment of a dividend (3.3% yield) which is attractive at a time when banks are seeking to preserve their capital.
HSBC has emerged from the crisis with a strengthened franchise and is gaining market share in Asia, where the group has recently decided to return in force to capture the higher growth potential . The bank’s balance sheet, through its strength and its structure, is ideally positioned to meet coming regulatory challenges. All of these advantages are only partially reflected in the current share price. We are initiating coverage of the shares with a PLUS.
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