HSBC Holdings Plc: Not The Best Six Months But Has A Great Six Years Ahead Of It

Although interim results released by HSBC Holdings plc (LON: HSBA) disappointed some corners of the investment world, I think they provide an opportunity to buy shares in a great company with a superb future

Peter Stephens

Having held various senior management positions in the manufacturing sector, Peter founded his own manufacturing company in 1996. This was subsequently sold in 2007. Meanwhile, his passion for investing (which began during the privatisations of the 1980s) remains strong and he couples this with writing for The Motley Fool as a Contractor. His investment style is value-oriented; focusing on company fundamentals, as well as assessing the strength and presence of a competitive advantage. While above-average growth prospects remain very attractive, a greater focus on dividends has crept in since Peter became a part-time retiree in 2007.

Published 7 August, 2013 11:30 am BST

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Isn’t it funny that a company can release a set of results that show it is making good progress and yet shares fall by 5% because short-term forecasts were missed?

That’s exactly what happened recently when HSBC Holdings (LSE: HSBA) (NYSE: HBC.US) released its half-year results.

Yes, there was a slight slowdown in growth rates in emerging markets and, since HSBC has a large exposure to such economies, it is understandable that this could cause some slight disappointment. However, shares fell by a whopping 5% after the release and, in my view, this is unfair and presents a great opportunity to buy the shares as an attractive price.

Indeed, I’m more keen to buy the shares now than I was before the results were released!

For starters, I think the emerging markets story is a long way from being over and, as such, remains a very attractive play. Although growth rates in such regions may have been slightly less than the market was hoping for, they are still above and beyond anything the developed world can manage. If I were a bank, I know which regions I would want large amounts of exposure to, so I think that HSBC is very well positioned to take advantage of relatively high growth rates.

Furthermore, in terms of numbers, HSBC also really impresses me. Its cost:expense ratio is very impressive at 53.5% (and falling), while return on equity is relatively high at 12%. So, HSBC is in good shape on a standalone basis, but especially when compared to its banking peers.

In addition, a price-to-earnings (P/E) ratio of 15.3 may sound a tad high, but when you consider that earnings per share are forecast to be 50% higher in two years then it sounds very reasonable and compares well to the FTSE 100, which has a P/E of 14.9.

As for a yield, HSBC ticks that box as well. Shares currently yield a very impressive 3.9% and, if you are an income-seeking investor like me, I would recommend that you also take a look at The Motley Fool’s Top Income Share of 2013.

It’s a real gem of a company and it’s completely free to take a look at the report. If, like me, you’re concerned about low savings rates and inflation then I’d recommend clicking here to take a look.

> Peter owns shares in HSBC.