Despite the recent announcement of buy backs and reduction of impairment charges leading to a jump in profits, HSBC shares have since sank on geopolitical concerns.
The recent drop in the HSBC share price will get the attention investors who will likely be questioning whether now is a good time to buy HSBC shares?
HSBC Share Price
Year to date, HSBC shares peaked in mid February at 567p and now trade at 504p, up 12% on the year.
Although HSBC posted good results, shares have declined due to geopolitical risks and concerns around the company’s outlook.
With the geopolitical risk around the Russia conflict sending waves through the financial system, there is a significant chance HSBC shares face further volatility in the coming weeks.
This is due to the global nature of HSBC’s operations and complexities of the financial system. Sanctions on Russia will likely have a greater impact on HSBC, when compared to domestic focused banks such as Lloyds and Natwest.
HSBC Earnings
HSBC announced a rise in profit after tax of $8.6bn to $14.7bn for 2021, and a profit before tax of $10.1bn to $18.9bn in 2021.
The profits had a positive impact due to impairment charges being reversed and bad debt provisions being reduced. The impairment charges for HSBC saw a steep decline from $8.8bn in 2020 to $0.9bn in 2021 which had a positive impact on the banks profitability.
However HSBC were forced to set aside cash to provide for any adverse scenario in the Chinese property markets. Analysts highlighted this as one of the major concerns for investors going forward.
“China’s property woes clearly remain a cause for concern for the Asia focused bank. The market is having a less than savoury response to higher than expected impairment charges, a lot of which relates to uncertainty in the Chinese commercial real estate sector,” said Susannah Streeter, senior investment and market analyst, Hargreaves Lansdown shortly after the release of HSBC’s results in February.
Net Interest Margin
Streeter also highlighted the precarious nature of HSBC’s business in a world that is starting to rate rises, but also relies on lendng activities across multiple geographies.
“The Goldilocks dilemma is also evident in this update, as HSBC needs inflation to tick up enough to prompt rising rates, but not be so hot it makes customers nervous about taking on new borrowing, which could dent its loans business,” Streeter said.
HSBC announced a decline in group in net interest income in 2021 with net interest margin decreasing 12 basis points to 1.2%.
Lower margins were a result of UK bank base rate cuts in 2020, as well as increased quantities of client deposit balances and cash at central banks.
With the ongoing situation in Ukraine, UK banks might miss out higher net interest margins, if the Bank of England – and other central banks – hold back from a steep tightening cycle.
HSBC Dividends
HSBC investors will be happy to see dividends increase to $0.25 per share for the full year. HSBC now has dividend yield of 3.7%.
HSBC Shares Valuation
With the HSBC share price are trading at 508p, the stock has a forward P/E of 9.39x and trailing P/E of 11.13x which is significantly above FTSE 100 banking peers.
This will reflect their global operations but seems rich given ongoing geopolitical risks.