How Russian Sanctions Will Hurt HSBC Holdings plc, Tullett Prebon Plc, SSE PLC And Foxtons Group PLC

HSBC Holdings plc (LON:HSBA), Tullett Prebon Plc (LON:TLPR), SSE PLC (LON:SSE) and Foxtons Group PLC (LON:FOXT) stand to lose.

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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.

The latest round of sanctions placed on Russia by the US and European Union are designed to be the toughest set of restrictions placed on the country so far.

However, it’s not just Russia that will feel the effect of these sanctions — the effects will be felt around the world. Some analysts have even warned that the City of London, in particular, stands to lose hundreds of millions as a result. 

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Little exposure HSBC

Luckily, domestic banks such as Lloyds and Barclays have almost no exposure to Russia. What’s more, HSBC (LSE: HSBA) (NYSE: HSBC.US), arguably London’s most international bank, sold its local Russian operations to Citigroup during 2011 as part of the bank’s drive to exit risky markets. 

Unfortunately, this drive by HSBC to exit risky markets and distance itself from risky customers has recently got the bank into trouble. 

Specifically, HSBC has, within the past few days, issued notices to a number of Muslim clients in the UK warning them that their accounts will be closed. HSBC has stated that continuing to operate the accounts would be operating the accounts would be beyond their “risk appetite”. As you can imagine, this move has attracted a lot of criticism.

stock exchangeTrading activity

While it’s unlikely that UK banks will suffer from Russian sanctions, trading floors across the City are likely to notice a drop in activity, as Russian capital stays away. Interdealer broker Tullett Prebon (LSE: TLPR) could suffer as a result. 

Tullett is already suffering from a lack of activity within the financial markets. The company’s recently released half-year report revealed that revenue for the period had declined 15% year on year, while underlying operating profit dropped by 28%.

Still, the company’s lofty dividend payout was maintained. At present, Tullett’s shares support a very attractive dividend yield of 6.8%.

Lack of energyng

If there’s one thing that Russia is known for, it’s the company’s colossal oil and gas reserves. Luckily, almost none of the gas Russia pumps through Europe gets to Britain.

Nevertheless, the UK is highly reliant on Russian coal. This could be a problem for SSE (LSE: SSE) and the company’s coal-fired power plants. If SSE is forced to pay more for coal to burn, the company’s profit margins will come under pressure.  

Falling profits are likely to put SSE’s lofty dividend yield of 5.9% under pressure as the payout is only covered one-and-a-half times by earnings per share.

Cover of one-and-a-half times may seem ample, but SSE is currently facing a number of issue that could also impact profits, including rising interest rates and the threat of an enforced break-up.

housesCapital property

It will come as no surprise that wealthy Russians have become the biggest buyers of property worth over £10m in London over the past few years. Sanctions placed on Russian billionaires are likely to result in a slowdown in London property sales, which will hurt Foxtons (LSE: FOXT).

Unfortunately, even a slight fall in sales could hurt Foxtons as the company is trading at a P/E of 20.2, a multiple that does not leave much room for error.

City analysts are expecting earnings per share growth of 18% this year, followed by 21% growth during 2015. If Foxtons misses these targets, the company’s valuation could rapidly fall back to earth. 

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