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Earnings look ahead: HSBC

HSBC’s share price slides as traders worry about the cooling of the Chinese economy.     

bg_hsbc_1360398
Source: Bloomberg

HSBC will announce its full-year earnings on 22 February, and traders are expecting revenue of $60.39 billion with an adjusted net income of $15.8 billion. These figures will equate to a 1.3% fall in revenue and a 4% drop in adjusted net income.

The bank will also reveal its second-half figures on the same date, and investors are anticipating revenue of $27.5 billion with an adjusted net income of $6.1 billion, which compares with the first-half revenue and adjusted net income of $32.94 and $9.64 billion respectively.

HSBC has had a rough ride along with the rest of the banking sector, as fears of a global recession are mounting. The bank has a large exposure to Asia and the slowdown in China has been particularly painful for HSBC’s share price. Despite good profit growth in its Asian division in the first-half, investors are getting out of HSBC for fear that China’s cooling off will be a hard landing. The finance house is headquartered in London, but according to Bloomberg the bank is to review this at a meeting in mid-February.

The UK’s membership of the EU is one of the factors that is prompting the relocation debate, and if the bank remains in the UK, the so-called ‘Brexit’ risk will be added to HSBC’s woes. 

 

 

TRAILING 12

MONTH P/E

 

FORWARD 12

MONTH P/E

 

PRICE/BOOK

VALUE

DIVIDEND YIELD

 

5 YEAR DIVIDEND 

GROWTH

HSBC 8.43 7.85 0.64 8.25% 7.85%

Standard Chartered

9.29 16.16 0.32 2.44% 2%
RBS N/A 9.88 0.47 N/A N/A
Barclays 69.15 7.13 0.43 4.57% 9.35%
Lloyds Banking Group 18.42 7.1 0.86 1.44% N/A
FTSE 100 24.14 14.72 1.61 4.67% N/A

 

Judging by the trailing price to earnings ratio, HSBC has a low valuation when compared with the broader market and with other banks, and the low price to book value also points to an undervaluation. The drop between the trailing price to earnings ratio, and the forward-looking price to earnings ratio, indicates an increase in future earnings; this is in contrast to the other Asian-focused bank, Standard Chartered. HSBC has a healthy dividend yield and a strong dividend growth rate.

Earnings vs estimates
Out of the past eight full-year earnings releases, HSBC exceeded the revenue estimate 25% of the time and topped the EPS expectations 37.5% of the time. High volatility can be anticipated on the day of the announcement, and the stock has moved on average 5.9%, while 87.5% of the time it was a negative move.

EPS chart

There is a high correlation between the EPS performance and the share price movement on the day of the announcement.

Rev chart

There is a reasonably good correlation between the revenue performance and the share price movement after the figures are released.

Brokers are bullish

  BUY RATINGS HOLD RATINGS SELL RATINGS
HSBC 14 17 5
Standard Chartered 10 16 4
RBS 12 13 2
Barclays 20 7 1
Lloyds 20 5 5

 

Equity analysts are bullish on HSBC as they have an average price target of £5.53 for the stock, which is 26% above the current price. It is worth noting that HSBC has the second lowest percentage (38%) of buy ratings attached to it from the list above.

HSBC shares have been trending lower in 2016, and the creation of lower lows and lower highs points to further losses. Traders will be keeping an eye on the 400p mark. Should we see an hourly close below that level it would be a bearish indicator, and the next big support levels in sight are 355p and 311p. Pullbacks in the stock may entice more selling, and should we see any rallies, they could encounter resistance at 445p, 468p and 494p.

HSBC chart

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