Today I am looking at why I reckon HSBC Holdings(LSE: HSBA) (NYSE: HSBC.US) is a canny choice for savvy stock pickers.
Strength across emerging markets
HSBC’s reputation as The World’s Local Bank cannot be underestimated. Of course the company’s amazing track record in its Asia-Pacific territory is no huge secret, HSBC having seen its pre-tax profit from Hong Kong jump by 13% during January-September, to $6.3bn, and by 5% in the rest of the region to, $6.7bn. These territories now account for 70% of group profit.
But investors should not underestimate the strength of its operations in other developing markets, with the bank’s profit before tax from its Middle East and Africa division surging 23% during the period, to $1.3bn.
Although wider economic pressures in Latin America have resulted in lower revenues and increased impairments in recent times, I believe that the firm’s extensive exposure to the continent — and with it increasing populations and income levels — should deliver sizeable gains over the longer term.
Streamlining continues to deliver
The bank’s ambitious restructuring programme also continues to rattle along at an impressive pace, and the firm stripped out an additional $400m in costs during the July–September period alone. This has helped drive annualised savings since the beginning of 2011 to $4.5bn, well ahead of its targeted date of end-2013. Indeed, this performance helped underlying revenues to outpace costs by an impressive 9% during the first nine months of the year.
In addition, HSBC is also making strides in shedding non-core assets in order to create a more efficient, earnings-generating machine. The company agreed to offload its Jordan business to Arab Jordan Investment Bank just last month, and follows the sale of its minority stake in Bank of Shanghai to Banco Santander in December.
Bank provides stunning bang-for-your-buck
In my opinion, the effect of vastly-overblown fears about growth rates in emerging market makes HSBC an excellent value selection for both growth and income investors.
The bank is expected to follow an anticipated 27% earnings rise in 2013 with improvements of 9% and 10% in 2014 and 2015 respectively. These projections create P/E multiples of 10.1 and 9.1 for this year and next, buzzing around the value benchmark of 10 and obliterating a forward average of 17.1 for the complete banking sector.
Meanwhile, the company’s ultra-progressive dividend policy — which is expected to thrust a full-year dividend of 51.8 US cents for last year to 57.1 cents this year and 63.6 cents in 2015 — creates monster yields of 5.5% and 6.1% for this year and next. These figures compare extremely favourably with an average yield of 3.7% for the rest of the UK’s listed banks.
