I wish I’d bought HSBC Holdings (LSE: HSBA) when it dipped in the first days of the war in Ukraine. The whole financial sector suffered a sharp drop. But since a low on 7 March, the HSBC share price has risen 15%. And even with this latest financial shock, HSBC is up 20% over the past 12 months.
The valuation still looks modest to me. And the bank is paying very attractive dividend yields. So is HSBC the FTSE 100’s best bargain right now? There are risks, but I think it could well be up there. And I’m seriously thinking of buying.
Going on 2021 full-year results, HSBC is on a price-to-earnings (P/E) multiple of 11 with a dividend yield of 3.7%. That’s on the current HSBC share price, and I’d clearly have done better had I bought at the end of 2021. But I still think that’s a bargain buy valuation, providing we see further progress in 2022 and beyond. And I think we will, judging by current forecasts.
Profit growth
The bank itself reckons it will continue to make progress with costs savings in the current year, and the forecasts echo that. The consensus suggests adjusted pre-tax profit should dip slightly, by 4% in the current year, but then rise in the following two years. By 2024, we could be looking at a pre-tax profit figure that’s 20% ahead of 2021.
That might sound like modest progress. But considering the geopolitical unrest we’ve seen, including growing tensions between the US and China, I’d be very happy with it. It suggests a year-end P/E for 2024 of only around nine, based on today’s HSBC share price.
Strong liquidity
Since the banking crisis, attention has been focused mainly on liquidity measures. The result, I reckon, is that our banks are safer and more financially secure today than they’ve been for a good few decades. HSBC was able to boast a common equity tier 1 capital ratio of 15.8% in 2021. That’s way better than any of the targets set by the Bank of England in its stress tests on UK-listed banks.
What’s the risk? The Ukraine conflict has focused financial attention on Russia. And that has, perhaps, drawn our attention away from those long-term trade and political conflicts between China and the US. Those conflicts have shaken a number of Chinese stocks with listings on American stock markets. And anything that hampers global trade has to be bad news for a multinational bank like HSBC.
HSBC share price outlook
Still, even with the risks, I still feel bullish about the HSBC share price. Interest rates are rising across the world, with the Bank of England and the US Federal Reserve both lifting them. That’s bad news for borrowers, but good news for banks.
Those higher rates could help push up HSBC’s profits in the next few years. And with HSBC continuing to “target dividends within our 40% to 55% dividend payout ratio range“, that would feed through to more cash in shareholders’ pockets.
But yes, overall, I think HSBC is one of the FTSE 100’s most attractive shares at the moment. And I might add some to my portfolio.