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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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