Shares in global banking behemoth HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) have hardly enjoyed a stellar run during 2014. Although prices have enjoyed a bump in recent weeks, the bank’s volatile ride has seen 4% shaved off the price as fears over the health of the global economy have whacked investor appetite.
In light of this weakness I am looking at whether the bank could prove a lucrative stock choice at current price levels.
Prolonged earnings growth expected
According to the City’s army of analysts, HSBC’s 14% earnings improvement last year finally put to bed the travails of the 2008/2009 banking crisis.
Even though economic cooling in critical emerging markets continues to swirl — HSBC derives two-thirds of group profits from Asia, with particular bias towards the continental lynchpins of China and Hong Kong — the business is predicted to punch growth of 3% this year. And this picks up to 6% in 2015.
Of course these growth figures are more sober than that recorded last year, a reflection of the financial turbulence in these key territories. But in the long-term I believe that surging demand for banking products in such developing regions — combined with aggressive streamlining at the firm — should underpin strong earnings expansion once these cyclical headwinds pass.
Besides, the City’s earnings projections for this year and next still make HSBC terrific value for growth investors, in my opinion. The World’s Local Bank carries a P/E multiple of just 11.6 times forward earnings for 2014 — outstripping a corresponding readout of 17.5 times for the rest of the FTSE 100 — and which moves to 11 times for 2015.
… while projected dividends destroy the competition
On top of this, HSBC is also poised to remain an attractive pick for dividend chasers, according to the abacus bashers. The business is anticipated to keep its progressive policy on track with payment raises pencilled in for both this year and next, resulting in sizeable yields of 5% for 2014 and 5.3% for 2015. By comparison the complete FTSE 100 boasts a forward yield of just 3.4%.
For some, the threat of current macroeconomic turbulence in key markets — combined with the multitude of misconduct issues facing the firm, from the mis-selling of PPI though to more recent allegations of fraud and money laundering in Belgium — could potentially derail dividend projections for this year and next.
But I reckon dividend hunters should take confidence that the firm’s robust capital position should safeguard anticipated payouts for this year and next. Indeed, the European Banking Authority’s stress tests last month showed HSBC’s CET1 capital ratio, when considered in ‘adverse’ conditions, soar above their minimum 5.5% target with a reading of 9.3%.
