The calculations below outline how an intrinsic value for HSBC Holdings is arrived at using the Excess Return Model. This approach is used for finance firms where free cash flow is difficult to estimate.
In the Excess Return Model the value of a firm can be written as the sum of capital invested currently in the firm and the present value of excess returns that the firm expects to make in the future.
The model is sensitive to the Return on Equity of the company versus the Cost of Equity, how these are calculated is detailed below the main calculation.
Note the calculations below are per share.
See our documentation to learn about this calculation.
Excess Returns = (Stable Return on equity – Cost of equity) (Book Value of Equity per share)
$0.01 = (8.61% – 8.52%) * $8.92)
Terminal Value of Excess Returns = Excess Returns / (Cost of Equity - Expected Growth Rate)
$0.12 = $0.01 / (8.52% - 1.49%)
Value of Equity = Book Value per share + Terminal Value of Excess Returns
$9.03 = $8.92 + $0.12Inputs used in model:
Stable EPS = Stable Book Value * Return on Equity
$0.77 = $8.92 * 8.61%
Source: Weighted future Return on Equity estimates from 15 analysts.
Book Value of Equity per Share: $8.92
Source: Weighted future Book Value estimates from 9 analysts.
Expected Growth Rate: 1.49%
Source: Risk Free Rate/ 10 year Government Bond Rate in GBP.
Value per share (USD): $9.03Exchange rate USD/GBP = 0.752
Value per share (GBP): £6.79
Current discount (share price of £7.39): -8.73%
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 = 8.52% = 1.49% + (0.826 * 8.51%)
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm). Note the market value of equity is used not the book value (£145,311,909,145).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
0.826 = 0.275 (1 + (1- 21%) (253.9%))
Levered Beta used in calculation = 0.826
This company is a bank or financial institution, which is analysed accordingly below.
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 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 Officer of HSBC UK. 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.
Average tenure and age of the HSBC Holdings management team in years:
Average tenure and age of the HSBC Holdings board of directors in years:
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.
|Name:||HSBC Holdings plc|
HSBC Holdings plc
8 Canada Square,
Greater London, E14 5HQ,
|Exchange Symbol||Ticker Symbol||Security||Exchange||Country||Currency||Listed on|
|LSE||HSBA||Ordinary Shares USD 0.50||London Stock Exchange||GB||GBP||08. Apr 1991|
|OTCPK||HBCY.F||Ordinary Shares USD 0.50||Pink Sheets LLC||US||USD||08. Apr 1991|
|DB||HBC1||Ordinary Shares USD 0.50||Deutsche Boerse AG||DE||EUR||08. Apr 1991|
|XTRA||HBC1||Ordinary Shares USD 0.50||XETRA Trading Platform||DE||EUR||08. Apr 1991|
|SEHK||5||Ordinary Shares USD 0.50||The Stock Exchange of Hong Kong Ltd.||HK||HKD||08. Apr 1991|
|SHSC||5||Ordinary Shares USD 0.50||Stock Exchange of Hong Kong Limited - Shanghai - Hong Kong Stock Connect||HK||HKD||08. Apr 1991|
|SZSC||5||Ordinary Shares USD 0.50||The Stock Exchange of Hong Kong - Shenzhen - Hong Kong Stock Connect||HK||HKD||08. Apr 1991|
|ENXTPA||HSB||Ordinary Shares USD 0.50||Euronext Paris||FR||EUR||08. Apr 1991|
|BER||HSBC.BH||Ordinary Shares USD 0.50||The Bermuda Stock Exchange||BM||USD||08. Apr 1991|
|BATS-CHIXE||HSBAL||Ordinary Shares USD 0.50||BATS 'Chi-X Europe'||GB||GBP||08. Apr 1991|
|BATS-CHIXE||HSBP||Ordinary Shares USD 0.50||BATS 'Chi-X Europe'||GB||EUR||08. Apr 1991|
|NYSE||HSEA||SUB CAP 8.125%||New York Stock Exchange||US||USD||03. Apr 2008|
|NYSE||HSBC||SPON ADR NEW||New York Stock Exchange||US||USD||26. Apr 1991|
|DB||HBC2||SPON ADR NEW||Deutsche Boerse AG||DE||EUR||26. Apr 1991|
|XTRA||HBC2||SPON ADR NEW||XETRA Trading Platform||DE||EUR||26. Apr 1991|
|BMV||HBC N||SPON ADR NEW||Bolsa Mexicana de Valores||MX||MXN||26. Apr 1991|