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)
$-0.05 = (8.45% – 9%) * $9.08)
Terminal Value of Excess Returns = Excess Returns / (Cost of Equity - Expected Growth Rate)
$-0.66 = $-0.05 / (9% - 1.49%)
Value of Equity = Book Value per share + Terminal Value of Excess Returns
$8.42 = $9.08 + $-0.66Inputs used in model:
Stable EPS = Stable Book Value * Return on Equity
$0.77 = $9.08 * 8.45%
Source: Weighted future Return on Equity estimates from 15 analysts.
Book Value of Equity per Share: $9.08
Source: Weighted future Book Value estimates from 10 analysts.
Expected Growth Rate: 1.49%
Source: Risk Free Rate/ 10 year Government Bond Rate in GBP.
Value per share (USD): $8.42Exchange rate USD/GBP = 0.717
Value per share (GBP): £6.04
Current discount (share price of £7.28): -20.59%
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 = 9% = 1.49% + (0.883 * 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 (£149,219,049,226).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
0.883 = 0.292 (1 + (1- 19%) (249.89%))
Levered Beta used in calculation = 0.883
This company is a bank or financial institution, which is analysed accordingly below.
Mr. John Michael Flint has been Group Chief Executive of HSBC Holdings plc since February 21, 2018 and serves as its Member of Group Management Board. Mr. Flint was the Chief Executive of Retail Banking & Wealth Management at HSBC Holdings plc since January 1, 2013 until January 31, 2018 and its its Group Managing Director since December 2012. He served as Group Group Head of Strategy & Planning and Chief of Staff at HSBC Holdings plc from January 2012 to December 31, 2013. He served as the Chief Executive Officer of HSBC Global Asset Management (UK) Limited until December 2011. He served as the Chief Executive Officer of HSBC Global Asset Management Arm from January 2010 to December 2011. He served as the Chief Executive of Global Asset Management, Group General Manager, Deputy Head of Global Markets and Group Treasurer at HSBC Bank Plc. He joined HSBC in 1989. He served at HSBC in Asia helping to establish and expand the HSBC Global Markets business in the region and served as the Regional Head of Balance Sheet Management for the Europe, Middle East and Africa Region since 2004. He served as the Group Treasurer and assumed global responsibility for balance sheet management at HSBC since 2006. He served as Director of HSBC Bank Canada since February 2012. He served as a Non Executive Director of HSBC Global Asset Management (Hong Kong) Ltd until January 06, 2012. He is a Member of the Institute of International Finance Market Monitoring Group. He was appointed as a director of The HongKong and Shanghai Banking Corporation Limited on 16 January 2018. He holds a B.Sc (Hons) in Economics.
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 (LSE:HSBA) generated a below-average return on equity of 3.79% in the past 12 months, while its industry returned 7.09%. … Check out our latest analysis for HSBC Holdings Peeling the layers of ROE – trisecting a company’s profitability Firstly, Return on Equity, or ROE, is simply the percentage of last years’ earning against the book value of shareholders’ equity. … The most recent ratio is 246.76%, which is relatively high, indicating HSBC Holdings’s below-average ROE is already being pushed up artificially by leverage and its ability to grow profit hinges on a sizeable debt burden.Simply Wall St - – Full article
LSE:HSBA Insider_trading Feb 12th 18 General Public Ownership The general public holds a substantial 47.14% stake in HSBA, making it a highly popular stock among retail investors. … With this size of ownership, retail investors can collectively play a role in major company policies that affect shareholders returns, including executive remuneration and the appointment of directors. … Thus, investors not need worry too much about the consequences of these holdings.Next Steps: HSBA's considerably high level of institutional ownership calls for further analysis into its margin of safety.Simply Wall St - – Full article
Let’s take a look at HSBC Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. … It’s trading around 12% above my intrinsic value, which means if you buy HSBC Holdings today, you’d be paying a relatively fair price for it. … It seems like the market has already priced in HSBC Holdings’s positive outlook, with shares trading around its fair value.Simply Wall St - – Full article
HSBC Holdings plc (LSE:HSBA) has returned to shareholders over the past 10 years, an average dividend yield of 6.00% annually. … Check out our latest analysis for HSBC Holdings 5 questions I ask before picking a dividend stock If you are a dividend investor, you should always assess these five key metrics: Is it the top 25% annual dividend yield payer? … In terms of its peers, HSBC Holdings generates a yield of 6.47%, which is high for banks stocks.Next Steps: Whilst there are few things you may like about HSBC Holdings from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor.Simply Wall St - – Full article
HSBC Holdings is trading at price-to-earnings (PE) ratio of 38.98x, this tells us the stock is overvalued compared to the GB market average ratio of 18.26x , and overvalued based on current earnings compared to the banks industry average of 16.9x. … Based on HSBC Holdings's predicted 137.57% growth in earnings next year and PE ratio of 38.98x we see that HSBC Holdings has a quite high PEG ratio of 2.74x. … So when we include the growth factor in our analysis HSBC Holdings appears overvalued , based on the fundamentals.Simply Wall St - – Full article
Formula Price-Earnings Ratio = Price per share ÷ Earnings per share P/E Calculation for HSBA Price per share = $10.38 Earnings per share = $0.278 ∴ Price-Earnings Ratio = $10.38 ÷ $0.278 = 37.3x The P/E ratio isn’t a metric you view in isolation and only becomes useful when you compare it against other similar companies. … For example, if you are inadvertently comparing riskier firms with HSBA, then HSBA’s P/E would naturally be higher than its peers since investors would reward its lower risk with a higher price. … If this assumption does not hold true, HSBA’s higher P/E ratio may be because firms in our peer group are being undervalued by the market.Simply Wall St - – Full article
Though banks are required to have a certain level of buffer to meet its capital requirements, HSBC Holdings’s leverage level of less than the suitable maximum level of 20x, at 13x, is considered to be very cautious and prudent. … Compared to the appropriate industry loan to deposit level of 90%, HSBC Holdings’s ratio of over 73.56% is sensibly lower and within the safe margin, which positions the bank cautiously in terms of liquidity as it has not disproportionately lent out its deposits and has retained an apt level of deposits.Conclusion HSBC Holdings meets all of our liquidity and leverage criteria, exhibiting operational prudency. … High liquidity and low leverage places the bank in an ideal position to repay financial liabilities in case of adverse headwinds.Simply Wall St - – Full article
Below, I will run you through a simple sense check to build perspective on how HSBC Holdings is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its banks industry peers. … HSBC Holdings's latest earnings is $5,517.0M, which, in comparison to the prior year's figure, has moved up by a non-trivial 59.27%. … Although revenue growth in the past couple of years, has been negative, earnings growth has been deteriorating by even more, meaning HSBC Holdings has been increasing its expenses.Simply Wall St - – Full article
Check out our latest analysis for HSBC Holdings LSE:HSBA Historical Debt Dec 12th 17 What Is An Appropriate Level Of Risk? … If it writes off more than 100% of the bad debt it provisioned for, then it has poorly anticipated the factors that may have contributed to a higher bad loan level which begs the question – does HSBC Holdings understand its own risk?. … Since HSBC Holdings’s total deposit to total liabilities is within the sensible margin at 60.44% compared to other banks' level of 50%, it shows a prudent level of the bank's safer form of borrowing and an appropriate level of risk.Conclusion HSBC Holdings has maintained a safe level of deposits against its liabilities.Simply Wall St - – Full article
Emphasizing elements like book values, on top of the return and cost of equity, is practical for evaluating HSBA’s true value. … The returns in excess of cost of equity is called excess returns: Excess Return Per Share = (Stable Return On Equity – Cost Of Equity) (Book Value Of Equity Per Share) = (8.63% – 8.33%) * $9.69 = $0.03 Excess Return Per Share is used to calculate the terminal value of HSBA, which is how much the business is expected to continue to generate over the upcoming years, in perpetuity. … This is a common component of discounted cash flow models: Terminal Value Per Share = Excess Return Per Share / (Cost of Equity – Expected Growth Rate) = $0.03 / (8.33% – 1.49%) = $0.39 These factors are combined to calculate the true value of HSBA's stock: Value Per Share = Book Value of Equity Per Share + Terminal Value Per Share = $9.69 + $0.39 = £6.87 Given HSBA's current share price of $7.33, HSBA is , at this time, trading in-line with its true value.Simply Wall St - – Full article
HSBC Holdings plc provides banking and financial products and services. The company operates through Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets, and Global Private Banking segments. The Retail Banking and Wealth Management segment offers personal banking products and services, mortgages and loans, credit cards, insurance and investment products, savings products, international services, and wealth solutions and financial planning services, as well as telephone, Internet, and mobile banking services. The Commercial Banking segment provides services and financing for buyers and suppliers throughout the trade cycle; liquidity and cash management services; capital financing, including debt, equity, and 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 enterprises, mid-market companies, and multinationals. The Global Banking and Markets segment is involved in the provision of advisory, financing, prime, research and analysis, securities, trading and sales, and transaction banking services to corporates, financial institutions, and resources and energy groups. The Global Private Banking segment provides private banking, and investment and wealth management services to business owners, entrepreneurs, and senior executives and their families. The company operates through approximately 3,900 offices in 67 countries and territories worldwide. 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||HSBC||SPON ADR NEW||New York Stock Exchange||US||USD||26. Apr 1991|
|NYSE||HSEA||SUB CAP 8.125%||New York Stock Exchange||US||USD||03. Apr 2008|
|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|
|Company Analysis updated:||2018/02/22|
|Last estimates confirmation:||2018/02/22|
|Last earnings update:||2017/12/31|
|Last annual earnings update:||2017/12/31|
All dates in UTC. All financial data provided by Standard & Poor’s Capital IQ.
Unless specified all financial data is based on a yearly period but updated quarterly. This is known as Trailing Twelve Month (TTM) or Last Twelve Month (LTM) Data. Learn more here.