- Second quarter earnings double forecasts
- 2023 return on equity target raised to 12%
- Chinese investor calling for break-up
Shares in HSBC Holdings (HSBA) jumped 6% in early trading following the release of second quarter results which were significantly ahead of consensus forecasts and an increase in the outlook for next year.
HEADLINE BEAT
Reported profit before tax slipped 1% to $5.1 billion, although this was well ahead of market estimates of $3.98 billion.
Earnings per share moved ahead by 65% year on year to $0.28, double the consensus estimate of $0.14, and the bank raised its interim dividend per share 29% to $0.09, ahead of the $0.08 consensus.
Management also raised its return on tangible equity forecast for 2023 to 12% from 10%-plus previously and will reinstate a quarterly dividend from next year onwards with a payout ratio of 50% against a consensus estimate of a 43% payout.
The only fly in the ointment was a 2.2% decline in the bank's CET1 (core equity tier 1) capital ratio to 13.6%, below management’s 14% to 15% target range.
The group also confirmed share buybacks were unlikely this year.
BREAK-UP CALL
Meanwhile, the bank is under pressure to appoint Chinese insurer Ping An, its largest shareholder with a 9.2% holding, to its board ahead of a meeting with investors in Hong Kong later this week.
Ping An wants to spin off HSBC’s Asian operations in an attempt to unlock shareholder value, an approach opposed by HSBC’s management.
The Chinese firm’s break-up call comes at a time when the group is looking to expand into wealth management and commercial banking in Asia to generate double-digit growth.
Last February, HSBC said it would spend more than $3.5bn over the next five years to meet its ambition to become the leading bank in wealth management in Asia.
The group aims to recruit up to 3,000 wealth planners to scale its mobile wealth-planning service in mainland China, which was launched in mid-2020 to reach new clients beyond the branch network.
EXPERT VIEW
HSBC’s shares are up 14% year-to-date and currently sit 14% below their 12-month high of 600p.
At yesterday’s closing price of 514p (£/$ = 1.22), HSBC trades on a trailing price/tangibile net asset value of 0.8x versus a target Return on tangible equity of 12%+ in 2023, according to analyst Gary Greenwood at Shore Capital.
‘There is currently 17% upside to our last published fair value of 600p, which is based on the group achieving a sustainable return of 11% longer-term and also includes a 5% haircut for geopolitical risk in additional our standard 5% haircut for future litigation and conduct risk’, said Greenwood.
Jefferies analyst Joseph Dickerson suggested the 2023 guidance on net interest income and costs implied 'all else equal at least a 10% upgrade to consensus profit before tax’.
