Stock of the Week: HSBC
This week’s share of the week is the UK’s largest listed bank HSBC. The new senior management team are trying to steer the bank to growth once again and their comments so far are fairly positive. HSBC will focus on driving further revenue growth from Asia while also expanding its wealth management and insurance business.
It has a mix of business and geographical spread, and is keen to promote the pivot to Asia strategy, which they hope in the long run, will see them emerge from a difficult period for the sector. Around 43% of profit now comes from Hong Kong and the group is set to invest more (around $17bn) in China, especially in the Pearl River Delta region and in technology.
In the interim results in August the CEO stated that he was cautiously optimistic for global growth. Revenue for the period rose by 4% to $27.3bn. The pre-tax profit rose to $10.7bn ($10.2bn). Rising costs, up by 7%, were again a concern, when compared to revenue growth.
An update in October gave the shares a much needed boost, as profits for the third quarter of $3.9bn, beat expectations; there was also growth across all of its three main businesses and costs were lower than in the previous quarter.
With dollar interest rates rising and wobbles in the global stock markets and with the Brexit decision ever still uncertain, investors should naturally be cautious. However, recent results combined with management commentary do not reflect this. HSBC is a significant dividend payer with the yield currently in excess of 6%, moreover, we believe that HSBC is less prone to Brexit-related issues than other main UK listed banks.
We believe that investors in this type of company, as in those looking for income at a relatively low to medium level of risk, should look past these short term wobbles and stay invested in solid income paying stocks for the long term. We therefore continue with our ‘buy’ recommendation on HSBC.