The HSBC (LSE: HSBA) share price has been cooking with gas lately. It’s up 45% over the past 12 months and more than 200% over five years, with dividends on top.
It’s not the only FTSE 100 bank to deliver strong gains. Barclays, Lloyds, and NatWest have also climbed hard. Yet HSBC offers something different, as it’s a play on Asia, where it earns around 55% of its revenues. The surprising thing is how robust it’s been, powering ahead even as China’s banking sector and property market struggle.
FTSE 100 banking stars
It’s even withstood growing tensions between Beijing and Washington. A few years ago, I decided to avoid HSBC for fear of the political fallout. Given subsequent stellar performance, that has to go down as a mistake. The bank has tried to manage the east-west split by effectively splitting into two operations. That’s given it some breathing space, but the danger hasn’t disappeared. Being listed in London and tied to Beijing is never going to be straightforward.
HSBC’s half-year results on 30 July showed profit falling by $5.7bn to $15.8bn, amid a $2.1bn hit from its stake in China’s Bank of Communications. It also took a $400m knockback on Hong Kong’s commercial property market, where oversupply continues to drag on rents and values.
The board nonetheless announced another bumper $3bn share buyback and said it was well-placed to handle ongoing uncertainty, including the threat of tariffs. Lending demand may stay muted for the rest of the year, but management expects its wealth division to power on.
It was hard to get a proper grip on the numbers, which were skewed by one-off items. This is a sprawling operation, and investors like me can only get a loose handle on how things are really going. That applies to every bank, but even more so with a global behemoth like HSBC. Trade, geopolitics, macro economics threats, regulatory issues – there’s always a threat to the banks but HSBC’s are on a bigger scale than its UK-focused rivals.
Valuation appeals
HSBC shares still look reasonably priced even after their strong run. The stock trades on a trailing price-to-earnings ratio of 10.3, while the price-to-book value stands at 0.9.
Income seekers may be tempted. HSBC is forecast to yield 5.2% next year, with cover of 2.1. The share buybacks should add further shareholder value. Operating margins of 44.6% impressed in the latest period, and forecasts suggest they could hit 49.6% in the year ahead.
Market expectations
After such a strong rally, HSBC surely has to pause for breath. Analysts seem to think we’re there. Consensus forecasts don’t expect much movement from today’s price of around 961p over the next year. Growth forecasts are healthier for Barclays, Lloyds, and NatWest, typically around the 15% mark.
Of the 19 analysts covering HSBC, just six rate it a Buy, while 12 suggest Holding. Only one says Sell. After its rise, HSBC may be due a quieter spell. I’d suggest keeping an eye on it, and maybe even considering buying on a dip. As ever, with a long-term view.
