It hasn’t exactly been plain sailing for the HSBC Holdings (LSE: LON:HSBA) over the past year. Its share price has recovered ground in recent weeks but it remains around 5% lower from levels seen at the same point last May.
Concerns over Brexit loom large over the FTSE 100’s banking giants and while HSBC’s exposure to the UK is minimal compared with its large-cap rivals, tension over slowing economic growth in Asia — and the impact that Federal Reserve rate rises could have in exacerbating the problems — has sent investors scurrying for the door. The business sources around four-fifths of profit from these territories.
I’ve long argued, though, that HSBC still has what it takes to create brilliant profits growth in the near term as GDP growth rates still remain strong in these regions; as there’s low market penetration for financial products here; and as population levels across Asia keep on booming.
Broker-beating numbers So I was delighted to see the Footsie bank put in another stunning performance when first-quarter financials were unpacked yesterday. It advised that revenues rose 5% in the three months to March to $14.4bn, a result that helped power adjusted pre-tax profit 10% higher to $6.4bn.
When HSBC is firing, it’s down to strong progress in those Asian heartlands, of course, and in quarter one turnover soared 7% to $7.8bn. That said, strong sales progress in its core territories wasn’t the whole story as broad strength across the globe drove revenues higher in all three of its main businesses of Retail Banking and Wealth Management, Commercial Banking and Global Banking and Markets.
And to put the cherry on top, the hard work it has undertaken to slash costs also paid off remarkably in the first quarter as adjusted operating expenses grew just 3% year-on-year, almost halving from the levels we saw in 2018.
A stunning all-rounder Things aren’t all green in the garden right now. It continues to have troubles in the US and this caused adjusted profits generated in North America to fall 9% to $388m in the first three months. It’s not a surprise that the business described its turnaround plan in this market as its “most challenging strategic priority.”
Despite its troubles here, City analysts believe the overall growth outlook remains red hot. It’s why they are forecasting a 12% earnings rise in 2019 alone, a reading which leaves it dealing on a dirt-cheap forward P/E ratio of 12.6 times and leads to predictions of more chubby dividends as well.
Sure, HSBC is predicted to keep the annual payout frozen at 51 US cents per share again this year, but this figure still yields a stunning 5.8%, bigger than the corresponding yields of its rivals Lloyds, RBS (LON:RBS), Barclays (LON:BARC) and even fellow emerging markets play Santander (MC:SAN).
And as soaring revenues and cost-cutting measures drive profits skywards, I’m expecting HSBC to get back to lifting dividends again sooner rather than later. So for long-term investors can this bank be considered the best stock on the FTSE 100 right now? Quite possibly, in my opinion.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group (LON:LLOY). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019