Today I am looking at why I believe shares in HSBC Holdings (LSE: HSBA) (NYSE: HBC.US) offer spectacular value for money at current prices.
Excellent earnings growth prospects
High-street banking giant HSBC has failed to garner the momentum of many other banking stocks so far in 2013, and has risen just 6% since the start of the year. This leaves the company as a blue-chip bargain in my opinion with stunning growth prospects from developing regions. Indeed, the City’s number crunchers expect the bank to record a 35% earnings per share (EPS) improvement for the current year, to 62p.
And analysts anticipate HSBC to continue to print improved earnings performance over the medium term, with an additional 8% EPS advance predicted for 2014 to 66p.
The company reported a 10% increase in pre-tax profit in the first six months of 2013, to $14.1bn, even though turnover dropped 7% during the period to $34.4bn. Indeed, an improvement in the number of regulatory fines — allied to lower provisions for bad loans — contributed to the profits increase.
Although revenues have stalled recently, investors should not overlook the growth opportunities that “The World’s Local Bank” is exposed to from lucrative emerging markets, particularly in Asia.
The firm saw pre-tax profits from Hong Kong rise 12% in January-June alone, while from the rest of Asia-Pacific these rose 16% from the corresponding 2012 period. HSBC’s transition towards concentrating on these markets still has further to go — even though 90% of profits already come from these regions — and promises to underpin future earnings growth.
In my opinion current growth for HSBC projections leave the bank trading in bargain basement territory. For the current year the bank was recently changing hands on a P/E rating of 11 and 10.2 for 2013 and 2014 correspondingly, just above the value watermark below 10 and smashing the prospective average of 41 for the complete banking sector. Furthermore, this year’s 35% EPS advance results in a price to earnings to growth (PEG) multiple of 0.3, well below a reading of 1 which represents succulent value for money.