While UK-based banks suffered a lingering slowdown during the credit crunch, a couple of others listed on the FTSE 100 saw their share prices recover surprisingly quickly. One was HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US), which is focused far more towards the East than the struggling Western world.
But what do its fundamentals look like? Here’s the past five years’ headlines, with forecasts for three more years:
| Dec | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2008 | 137c | -5% | 7.0 | 64c | — | 6.7% | 2.1x |
| 2009 | 34.0c | -75% | 34.6 | 34c | -47% | 2.9% | 1.0x |
| 2010 | 73.0c | +115% | 14.8 | 36c | +5.9% | 3.3% | 2.0x |
| 2011 | 92.0c | +26% | 8.8 | 41c | +14% | 5.0% | 2.2x |
| 2012 | 74.0c | -20% | 14.5 | 45c | +9.8% | 3.2% | 1.6x |
| 2013* | 94.5c | +27% |
11.3 |
52c | +16% | 4.2% | 1.8x |
| 2014* | 103c | +9% | 10.4 | 57c | +9.6% | 4.8% | 1.8x |
| 2015* | 114c | +10% | 9.4 | 64c | +12% | 5.9% | 1.8x |
* forecast
The crunch
Now, that was a pretty big hit to earnings in 2009, and the dividend was also slashed.
The share price took a nosedive too, plunging from a 2008 peak of 928p to 360p by March 2009, for a fall of 61%. But that was positively bullish compared to some — Lloyds Banking Group and Royal Bank of Scotland crashed by more than 90%.
But what’s happened since? Before the year was out, HSBC shares were back up around 740p — still lower than that 2008 high, but only by around 20%.
Diversity
The major reason HSBC wasn’t hit anywhere near as hard as the others is its global diversity. More than half of the bank’s business is in Asia, with its home market of Hong Kong accounting for a third of 2012’s profits. And so it just wasn’t as exposed to the sub-prime mortgage mess, excessive credit levels, and the other liquidity problems that beset those focused in the UK, Europe and the USA.
That strength, however, is now a cause of weakness. China is facing the twin problems of booming credit and soaring property prices, which sounds scarily familiar.
Price falling
That’s helped push HSBC shares down, by more than 10% over the past 12 months. But is the fall overdone now? With recent earnings and dividends forecasts still looking upbeat, and with the shares on a forward P/E of 11 for the year ended in December 2013 and dropping to 9 based on 2015 forecasts, I think it is.
Those valuations are little better than crisis-days levels, and we’re far from sure that any catastrophe is going to hit HSBC from China. For one thing, unlike the West, China can see it coming and can learn lessons from the crunch the world has already seen.
And even if we do see tough times in China (and I think we very well might, but just not as bad as some seem to think), well, it’s not the entirety of HSBC’s business — the bank conducts business worldwide.
Too cheap
So, I think the shares are oversold — and we could easily see a FTSE-beating year from a combination of price recovery and dividends.
Verdict: Cautious optimism for 2014!