Why Bottom-Line Detonations Are Expected At HSBC Holdings plc, Travis Perkins plc & Domino’s Pizza Group PLC

Today I am highlighting the brilliant earnings potential of three London leviathans.

HSBC Holdings

Thanks to its terrific exposure to emerging markets, banking giant HSBC (LSE: HSBA) is expected to deliver brilliant returns well into the future. Even though China’s economy continues to cool, ‘The World’s Local Bank’ keeps on pulling up trees in Asia, and in particular in Hong Kong. And last week HSBC announced plans to establish a joint venture with Shenzhen Qianhai Financial Holdings to further boost its operations in China.

City forecasts currently indicate a 14% earnings bounce over at HSBC in 2015, although the bottom line is expected to stutter again next year as revenues slip — a 4% decline is currently pencilled in. But to mitigate these top-line travails, not to effect the impact of further regulatory fines, HSBC is undergoing extensive restructuring to protect earnings. Indeed, this penny-pinching helped drive adjusted operating expenses 4% lower in July-September from the previous three months.

And once current economic headwinds in China abate, I am convinced a blend of rising personal income levels and surging demand for banking products should drive profits at HSBC comfortably higher again. Given that the bank deals on a prospective P/E rating of just 9.9 times, I believe HSBC is a great way to trade emerging markets at a knockdown price.

Travis Perkins

With the UK housing market continuing to improve, I reckon the tills over at Travis Perkins (LSE: TPK) should pick up again following recent difficulties. The business shook the market last month when it advised earnings growth for 2015 would be “at the lower end of market expectations,” a development caused by slowing renovation, maintenance and improvement activity.

More promisingly, however, Travis Perkins commented that “fourth quarter trading has started more encouragingly.” The steadily-improving spending power of British consumers should keep on powering demand at its customer-focussed Wickes outlets, in my opinion, while a pick-up in housing transactions should bolster sales at its own-brand stores.

Indeed, Travis Perkins’ confidence in its end markets was underlined by its decision in March to add another 400 stores to its 2,000-strong network over the next four years. As this expansion clicks through the gears the City expects earnings growth of 5% this year to accelerate to 12% in 2016, pushing a P/E rating of 15.2 times for the current period to just 13.6 times. I reckon this represents decent value given the rising strength of the British homes market.

Domino’s Pizza Group

Helped by its decision to embrace digital diners, sales at takeaway outfit Domino’s Pizza Group (LSE: DOM) have absolutely exploded in recent times. The company saw orders made through online platforms during July-September gallop an astonishing 35% from the same period in 2014, and more than three-quarters of all orders in the year to date have been placed via the internet and through the firm’s dedicated ‘app’.

On top of this, the aggressive store expansion scheme at Domino’s is also paying off handsomely, and the caterer opened 12 new outlets in the UK in the third quarter — the firm is aiming to open 50 new stores in 2015 in total. Meanwhile, Domino’s is also enjoying improving performance in Ireland, and is pulling out all the stops to bolster its service in Germany and Switzerland.

Domino’s commented following its latest release — an update that revealed an eighth successive quarter of double-digit underlying sales growth — that full year results should exceed its prior estimates. With this in mind the number crunchers expect the fast food play to report earnings growth of 25% in 2015 and 12% next year. Subsequent P/E ratios 32.1 times and 28.7 times may appear expensive, but I believe Domino’s astonishing sales growth justifies this high price.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Domino's Pizza and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.