Saturday 8 June 2013

Analysis of HSBC

A British financial institute

Company: HSBC Holdings plc

Business: Financial industry. One of the largest financial institutes in the world operating within Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets, and Global Private Banking.

Active: Serving their 58 million customers in Europe, Hong Kong, Rest of Asia-Pacific, Middle East and North Africa, North America and Latin Americ. What is interesting here is that HSBC having their HQ in London is making over 50% of their profits in Asia.

P/E: 14.3

I realised here that my comparisons are maybe not great for the banks. In some cases I have looked at the Interest revenue and in some cases I have looked at the total return. In many cases the interest revenue has dropped like crazy but the total return has had a maintained stability in most cases and for some banks I just do not easily find those details. So please keep in mind that there is some issues here with the banks which then leads to two things. One is that it has an effect on the calculated last five years growth and secondly is on the earnings per sale.
The P/E for HSBC is up over 14 and they have a P/B of 1.15 which gives a buy signal according to Graham. The earnings to sale is good with its 23% based on that I look on the total return. The book to debt is 7% which is very good for a European bank! The German banks are far, far from that. The growth in the last five years has been pretty poor with only slightly over 1% which leads to a motived P/E of 11. This means that the stock already today is slightly over valued and 2012 was a good earnings year! They are paying a dividend of over 4% which is great and this corresponds to 60% of earnings which I find fully acceptable for a financial institute that needs to make very little investment for growing.

Conclusion: The company looks pretty ok. They pay nice dividends and have done at least for the last eight years. I would have prefered that the stock price would drop down slightly before stepping in because I like to buy my stocks below a P/E of 10. So it is a potential buy!

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