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HSBC Holdings

LSE:HSBA
Snowflake Description

Flawless balance sheet with moderate growth potential.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
HSBA
LSE
£132B
Market Cap
Diversified Banks
Company description

HSBC Holdings plc provides banking and financial products and services in the United Kingdom and internationally. More info.


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Value

 Is HSBC Holdings undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of HSBC Holdings to its discounted cash flow value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

Dividends have been used for this discounted cash flow calculation, why is this?

  • The current share price of HSBC Holdings is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avacados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for HSBC Holdings's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are HSBC Holdings's earnings available for a low price, and how does this compare to other companies in the same industry?
  • Overvalued based on earnings compared to the Banks industry average.
  • Overvalued based on earnings compared to the overall market.
Price based on expected Growth
Does HSBC Holdings's expected growth come at a high price?
  • Good value based on expected growth next year.
Price based on value of assets
What value do investors place on HSBC Holdings's assets?
  • Good value based on assets compared to the Banks industry average.
X
Value checks
We assess HSBC Holdings's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
  2. Is the PE ratio less than the market average, and/ or less than the Banks industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Banks industry average (and greater than 0)? (1 check)
  5. HSBC Holdings has a total score of 2/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (1966.21%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (Dividend Discount Model)

The calculations below outline how an intrinsic value for HSBC Holdings is arrived at by discounting future dividends to their present value. This approach is used for finance firms where free cash flow is difficult to estimate (e.g. Banks/ Insurance firms).

If the firm does not pay the majority of its earnings out as a dividend this method will often arrive at a value significantly lower than the share price.

See our documentation to learn about this calculation.



Value of the stock

Value = Expected dividends per share / (Discount Rate - Perpetual growth rate)
$4.41 = ($0.53 / (10.51% - 1.17%)

Value per share (USD): $5.64

Exchange rate USD/GBP = 0.782

Value per share (GBP): £4.41

Current discount (share price of £6.75): -53%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 10.51% = 1.17% + (1.058 * 8.83%)



Estimate of Bottom Up Beta

The Levered is used in the case of financial firms, but it is not adjusted for financial leverage like with non-finance firms. Therefore the average levered beta from comparable firms is used as the bottom-up beta. It is limited to 0.8 to 2.0 (practical range for a stable firm).

Average Levered Beta from peers = 1.058

Levered Beta used in calculation = 1.058



Assumptions
  1. The risk free rate of 1.17% is from the 10 year government bond rate in GB.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is HSBC Holdings expected to perform in the next 1 to 3 years based on estimates from 13 analysts?

    The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

    Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
    3 year growth
    2590%
    Expected earnings growth over 3 years.
    Future Earnings growth analysis
    Is HSBC Holdings expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.

    Are HSBC Holdings's annual earnings growth expected to exceed 1.8% over the next 3 years?

    • After 1 year
    • After 3 years
    1 & 3 year estimated growth in earnings
    Past and Future Earnings per Share
    The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
    Analysts growth expectations
    2 year growth check
    Super high growth metrics x1.5?

    Which of the these is expected to increase by over 50% in 2 year's time?

    • Revenue
    • Cash flow data unavailable.
    • Profit
    Performance in 3 years
    In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
    • HSBC Holdings is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.

    Improvement & Relative to industry
    • Expected to be above the Banks industry average.
    • An improvement in HSBC Holdings's performance (ROE) is expected over the next 3 years.
    X
    Future performance checks
    We assess HSBC Holdings's future performance by looking at:
    1. Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
    2. Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
    3. Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
    4. Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
    5. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
    Some of the above checks will fail if the company is expected to be loss making in the relevant year.
    HSBC Holdings has a total score of 3/6, see the detailed checks below.

    Note: If no +3 year data is available, +2.5 year data may be used.

    Note 2: We use GAAP per Share in all our calculations.

    Full details on the Future part of the Simply Wall St company analysis model.

    Past Performance

     How has HSBC Holdings performed over the past 5 years?

    The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
    Past earnings growth
    Below we compare HSBC Holdings's growth in the last year to its industry (Banks).
    Past Earnings growth analysis
    We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
    • HSBC Holdings's earnings growth has not matched the industry average in the past year.
    • HSBC Holdings's 1 year earnings growth is negative.
    • HSBC Holdings earnings have fallen over the past 5 years.
    Profit History
    HSBC Holdings's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
    Performance last year
    We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
    • Poor return on shareholders funds (ROE) last year.
    • HSBC Holdings performed worse than the Banks industry average based on return on assets (ROA) last year.
    • Performance based on revenue producing assets (ROCE) has been diminishing over 3 years.
    X
    Past performance checks
    We assess HSBC Holdings's performance over the past 5 years by checking for:
    1. Has earnings per share (EPS) increased in past 5 years? (1 check)
    2. Has the EPS growth in the last year exceeded that of the Banks industry? (1 check)
    3. Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
    4. Is the Return on Equity (ROE) higher than 20%? (1 check)
    5. Is the Return on Assets (ROA) above industry average? (1 check)
    6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
    The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
    HSBC Holdings has a total score of 0/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations.

    Full details on the Past part of the Simply Wall St company analysis model.

    Health

     How is HSBC Holdings's financial position? (This company is analysed differently as a bank or financial institution)

    This company is a bank or financial institution.

    Fundamentally a bank's business is based upon borrowing and lending money, for this reason they typically have high levels of debt and we analyse them differently.
    Net Worth
        Balance sheet
        This treemap shows a more detailed breakdown of HSBC Holdings's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
        Assets
        Liabilities and shares
        The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
            Historical Debt
            Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

            The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

            If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
                    BANK ANALYSIS

                    This company is a bank or financial institution, which is analysed accordingly below.

                    Below we check the amount of loans the bank has, how many of those are bad, and its ability to cover any bad loans.
                    • Acceptable proportion of non-loan assets held.
                    • Liabilities are made up of primarily low risk sources of funding.
                    • Loans are broadly funded by customer deposits.
                    • The banks level of assets compared to its equity is moderate (i.e. an appropriate level of borrowing to fund lending).
                    • High level of bad loan coverage.
                    • Acceptable level of bad loan write offs (less than 2%).
                    X
                    Financial health checks (Bank)
                    We assess HSBC Holdings's financial health as a bank by checking for:
                    1. Leverage (Assets to Equity > 20x)? (1 check)
                    2. Coverage of bad loans (Bad Loan Coverage > 100%)? (1 check)
                    3. Proportion of lower risk deposits compared to total funding (Deposits to Liabilities < 50%)? (1 check)
                    4. Proportion of higher risk assets compared to total assets (Loans to Assets > 110%)? (1 check)
                    5. Total loans compared to deposit funding (Loans to Deposits > 125%)? (1 check)
                    6. Level of bad loans (Net Charge Off Ratio > 3%)? (1 check)
                    7. HSBC Holdings has a total score of 6/6, see the detailed checks below.


                    Full details on the Health part of the Simply Wall St company analysis model.

                    Dividends

                     What is HSBC Holdings's current dividend yield, its reliability and sustainability?

                    Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
                    Annual Dividend Income
                    Dividend payments
                    5.86%
                    Current annual income from HSBC Holdings dividends. Estimated to be 5.95% next year.
                    If you bought $2,000 of HSBC Holdings shares you are expected to receive $117 in your first year as a dividend.
                    Dividend Amount
                    Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
                    • Paying above low risk savings rate. (2.3%)
                    • Paying above the markets top dividend payers. (3.98%)
                    Historical dividend yield
                    It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

                    We also check to see if the dividend has increased in the past 10 years.
                    • Dividends per share have been volatile in the past 10 (annual drop of over 10%).
                    • Dividends per share have fallen over the past 10 years.
                    Current Payout to shareholders
                    What portion of HSBC Holdings's earnings are paid to the shareholders as a dividend.
                    • Dividends paid are not well covered by net profit (0.3x coverage).
                    Future Payout to shareholders
                    • Dividends after 3 years are expected to be covered by net profit (1.4x coverage).
                    X
                    Income/ dividend checks
                    We assess HSBC Holdings's dividend by checking for:
                    1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
                    2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
                    3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
                    4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
                    5. How sustainable is the dividend, can HSBC Holdings afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
                    6. HSBC Holdings has a total score of 3/6, see the detailed checks below.


                    Full details on the Dividends part of the Simply Wall St company analysis model.

                    Management

                     What is the CEO of HSBC Holdings's salary, the management and board of directors tenure and is there insider trading?

                    Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
                    CEO
                    Stuart Gulliver, image provided by Google.
                    Stuart Gulliver
                    COMPENSATION$5,675,000
                    AGE58
                    CEO Bio

                    Mr. Stuart Thomson Gulliver serves as the Chairman of Group Management Board at HSBC Holdings PLC and has been its Group Chief Executive Officer since January 2011. Mr. Gulliver serves as the Group Chief Executive Officer of The HSBC Group at HSBC North America Holdings Inc. He served as the Chief Executive for Global Banking and Markets and Group Chief Executive Officer at HSBC USA Inc. He served as the Chief Executive of Corporate, Investment Banking and Markets (CIBM) of HSBC Holdings plc, the holding company of Hsbc Trinkaus & Burkhardt Ag and since June 8, 2004 and served as its Member of the Group Management Board. He served as the Chief Executive of Corporate Investments Banking, Markets and investments at HSBC Bank USA, N.A. He served as Head of Investment Bank at HSBC Holdings plc. He served as Head of Corporate, Investment Banking and Markets and Group Investment Businesses at HSBC Bank plc since September 1, 2006. He served as Group General Manager of HSBC Bank plc. He is a Special Adviser to Dai Xianglong, Mayor of Tianjin, China. He served as Head of Cibm and Group Investment Businesses Globally of HSBC Finance Corp. He served as Group Chief Executive of HSBC Private Banking Holdings (Suisse) SA since January 2011. He served as Senior Advisor at CVC Capital Partners Ltd. Mr. Gulliver served as Group Managing Director at HSBC Holdings plc since March 1, 2004 and served as its Head of Corporate, Investment Banking & Markets. He served as Governor of the People's Bank of China. He joined HSBC in 1980. He served as Group General Manager of HSBC Holdings from 2000 to April 17, 2003 and served as Head of Treasury and Capital Markets in Asia-Pacific from 1996 to 2002, Head of Global Markets from 2002 to 2003 and Co-Head of Corporate, Investment Banking and Markets from April 17, 2003 to May 2006. He served as the Chief Executive of Global Banking & Markets & HSBC Global Asset Management at HSBC Holdings plc until January 1, 2011. He also served as Co-Head of Investment Banking of HSBC Holdings PLC. He has been the Chairman of HSBC Bank Middle East Limited since February 25, 2010. He has been the Chairman at The Hongkong and Shanghai Banking Corporation Limited since January 1, 2011. Mr. Gulliver served as the Non-executive Chairman and Non Executive Director of HSBC France since January 1, 2009. He served as the Chairman of HSBC Private Banking Holdings (Suisse) SA from February 25, 2010 to December 6, 2011. He served as Deputy Chairman of Supervisory Board of HSBC Trinkaus & Burkhardt AG until June 07, 2011. He served as Chairman of HSBC Bank Middle East Limited from February 2010 to December 2010. He served as the Chairman of Europe and Middle East at HSBC Holdings plc. He has been an Executive Director of HSBC Bank USA, N.A. since September 01, 2006. He has been a Director of The Hongkong and Shanghai Banking Corporation Limited (HSBC Ltd.) since September 22, 2006. He has been an Executive Director of HSBC Holdings Plc since May 2008. He served as a Member of the Supervisory Board at HSBC Trinkaus & Burkhardt AG. He served as a Director of HSBC Private Banking Holdings (Suisse) SA from September 1, 2007 to December 6, 2011. He served as an Executive Director of HSBC USA Inc. He served as Executive Director of HSBC Bank plc from September 1, 2006 to December 31, 2010. Mr. Gulliver was educated at Oxford University and received a Masters Degree in Jurisprudence.

                    CEO Compensation
                    • CEO's compensation has been consistent with company performance over the past year.
                    • CEO's compensation appears reasonable.
                    Management Team Tenure

                    Average tenure of the HSBC Holdings management team:

                    Management tenure
                    6.1 years
                    • The average tenure for the HSBC Holdings management team is over 5 years, this suggests they are a seasoned and experienced team.
                    Management Team

                    Douglas Flint

                    TITLE
                    Group Chairman
                    COMPENSATION
                    $2,136,000
                    AGE
                    62

                    Stuart Gulliver

                    TITLE
                    Chairman of Group Management Board
                    COMPENSATION
                    $5,675,000
                    AGE
                    58

                    Iain MacKay

                    TITLE
                    Group Finance Director
                    COMPENSATION
                    $2,953,000
                    AGE
                    55

                    Marc Moses

                    TITLE
                    Group Chief Risk Officer
                    COMPENSATION
                    $2,936,000
                    AGE
                    59

                    Peter Wong

                    TITLE
                    Group MD & Member of the Group Mgmt Board
                    AGE
                    66

                    Peter Boyles

                    TITLE
                    Member of Group Management Board
                    AGE
                    61
                    Board of Directors Tenure

                    Average tenure of the HSBC Holdings board of directors:

                    Board tenure
                    5.6 years
                    • The tenure for the HSBC Holdings board of directors is about average.
                    Board of Directors

                    Douglas Flint

                    TITLE
                    Group Chairman
                    COMPENSATION
                    $2,136,000
                    AGE
                    62

                    Stuart Gulliver

                    TITLE
                    Chairman of Group Management Board
                    COMPENSATION
                    $5,675,000
                    AGE
                    58

                    Iain MacKay

                    TITLE
                    Group Finance Director
                    COMPENSATION
                    $2,953,000
                    AGE
                    55

                    Peter Wong

                    TITLE
                    Group MD & Member of the Group Mgmt Board
                    AGE
                    66

                    Marc Moses

                    TITLE
                    Group Chief Risk Officer
                    COMPENSATION
                    $2,936,000
                    AGE
                    59

                    Andy Maguire

                    TITLE
                    Chairman of the Technology Advisory Board
                    AGE
                    50
                    Recent Insider Trading
                    • HSBC Holdings insiders have sold more shares than they have bought in the past 3 months.
                    Who owns this company?
                    X
                    Management checks
                    We assess HSBC Holdings's management by checking for:
                    1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
                    2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
                    3. Is the average tenure of the management team less than 2 years? (1 check)
                    4. Is the average tenure of the board of directors team less than 3 years? (1 check)
                    5. HSBC Holdings has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.


                    Note: We use the top 6 management executives and board members in our calculations.

                    Note 2: Insider trading include any internal stakeholders and these transactions.

                    Full details on the Management part of the Simply Wall St company analysis model.

                    Company News

                    Company Info

                    Description

                    HSBC Holdings plc provides banking and financial products and services in the United Kingdom and internationally. It operates through Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets, and Global Private Banking businesses. The company’s Retail Banking and Wealth Management business offers a range of personal banking products and services, including current and savings accounts, mortgages and personal loans, credit cards, debit cards, and local and international payment services; and insurance and investment products, asset management services, and financial planning services. Its Commercial Banking business provides services and financing for buyers and suppliers throughout the trade cycle; liquidity and cash management services; capital financing, including debt and equity advisory services; and insurance and investment products, such as business and financial protection, trade insurance, employee benefits, corporate wealth management, and other commercial risk insurance products to small and medium-sized enterprises, and mid-market companies. The company’s Global Banking and Markets business is involved in the provision of financing, advisory, and transaction banking services, as well as prime, research and analysis, trading and sales, and securities services to companies, governments, and institutions. Its Global Private Banking business provides private banking, investment, and wealth management services to business owners, entrepreneurs, and senior executives and their families. The company operates through approximately 4,000 offices in North America, Latin America, Europe, the Middle East, North Africa, and Asia. HSBC Holdings plc was founded in 1865 and is headquartered in London, the United Kingdom.

                    Details
                    Name:HSBC Holdings plc
                    Ticker:HSBA
                    Exchange:LSE
                    Founded:1865
                    Market Cap:£131,578 million
                    Website:http://www.hsbc.com
                    Listings
                    Map

                    8 Canada Square, London, E14 5HQ, United Kingdom

                    Number of employees
                    Street

                    Current staff
                    Staff numbers
                    235,175
                    HSBC Holdings employees.
                    Industry
                    Industry:Diversified Banks
                    Sector:Banks