Do we really have the City’s analysts forecasting 23% earnings growth for a bank — and not for one of the recovering bailed-out pair?
We certainly do, with a pair of back-to-back 11% EPS growth forecasts for the next two years for HSBC Holdings (LSE: HSBC). And on top of that we have dividends set to yield 5.3% this year based on the current share price of 605p, with a hike to 5.7% predicted for the year ending December 2015.
Tamed bulls
Sentiment has cooled over the past 12 months, however, as fears emanating from a credit boom in China coupled with rapidly-rising property values has led many to fear the sound of bursting bubbles. A year ago, the consensus of forecasts suggested earnings per share of 71p for this year, but that has been scaled back to around 56p now. Forecasts for 2015 have also been cut, from 69p three months ago to the current 61p per share.
But at the same time, the HSBC share price has been slipping too — it has lost nearly 15% in a year, against a rise of 3% for the FTSE 100 as a whole. That does give us a forward P/E ratio of under 11 for this year, which compares favourably with the FTSE’s long-term average of around 14 — and with earnings expected to grow further next year, the P/E would fall to under 10.
The tipsters are split
On these headline measures, HSBC looks a clear Buy, but what about the unquantifiable risk that is China? Well, if that leaves you in a quandary, you’re not alone — individual analysts themselves are widely split on the decision.
The biggest group of 29 forecasters, a full 13 of them, is in the camp that thinks we should buy the shares — but we have seven urging us to sell, with nine sitting on the Hold fence. And there’s a reasonable spread in individual guesses too.
Assessing the risk
The Chinese risk is very definitely real — HSBC earned more than a third of its 2013 profits in its home market of Hong Kong, with another third coming from the rest of the Asia Pacific region. By comparison, a mere 8% came from Europe with just 5% from North America — that relative immunity from the Western crisis puts HSBC squarely in the firing line should we see an Oriental equivalent.