Interactive Investor

ii view: HSBC proves ability to return lots of cash to shareholders

Year-to-date share buybacks of up to $7 billion announced and sat on a highly attractive estimated future dividend yield. Buy, sell, or hold?

23rd November 2023 15:44

Keith Bowman from interactive investor

Third-quarter results to 30 September

  • Revenue up 40% to $16.2 billion (£13 billion)
  • Pre-tax profit of $7.7 billion (£6.2 billion), up from $3.2 billion
  • Capital cushion or CET1 ratio of 14.9%, up from 14.7% in late June
  • Third interim dividend of 10 US cents per share 
  • New share buyback programme of up to $3 billion (£2.4 billion)

Chief executive Noel Quinn said:

“We have had three consecutive quarters of strong financial performance and are on track to achieve our mid-teens return on tangible equity target for 2023. There was good broad-based growth across all businesses and geographies, supported by the interest rate environment.”

ii round-up:

Founded in 1865 in Hong Kong and now headquartered in London, HSBC Holdings (LSE:HSBA) serves around 39 million customers in over 60 countries and territories worldwide. 

It operates across the three arenas of Wealth and Personal Banking, Commercial Banking, and Global Banking and Markets.

For a round-up of these latest results announced on the 30 October, please click here.

ii view:

HSBC is one of the world’s largest banking and financial services organisations. Its stock market value of around £118 billion stands comfortably ahead of UK headquartered rivals Lloyds Banking Group (LSE:LLOY), Barclays (LSE:BARC) and NatWest Group (LSE:NWG), all at under £30 billion. Almost four-fifths of its profit came from Asia in 2022. 

Current strategic pushes include upping its investment in technology, transitioning to a net zero carbon company and reshaping its business portfolio, including planned sales in France and Canada and previous sales in Greece and Oman. Acquisitions include the UK business of failed US Silicon Valley bank SVB in March 2023 and Citigroup’s retail wealth management portfolio in mainland China. 

For investors, property related stresses in China and difficulties caused for rivals such as Standard Chartered (LSE:STAN) cannot be ignored. Elevated costs in relation to staff pay and required technology investments have been a hindrance. Some geographical diversity is being lost as it focuses on regions of strength, while elevated geopolitical tensions, particularly between China and the West, continue to warrant consideration.  

More favourably, investment now in technology and digital services should bring reward further down the line. Bad debt provisions for potential challenges in China are being made, there's an ongoing broad focus on cost containment persists, while the bank’s balance sheet remains robust.  

On balance, and while some caution remains sensible given Chinese uncertainties, continued share buybacks and a forecast dividend yield of over 8% is likely to keep income investors happy.   

Positives: 

  • Robust balance sheet
  • Attractive dividend yield (not guaranteed)

Negatives:

  • Uncertain economic outlook
  • Heightened political tensions between the West and China

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.