HSBC Holdings PLC – Operating with an Increase in Adjusted Customer Accounts
HSBC Holdings Plc (LON: HSBA) is a London, United Kingdom based banking company. The Company provides retail banking, commercial banking, global banking & markets, and global private banking. HSBA offers various banking products and services across the geographies. It serves more than 40 million customers.

On 3^rd August 2020, the Group will release its interim results 2020.

First Quarter of 2020 (as on 28th April 2020)
The Company provided the first quarter results of 2020, with the profits impacted by Covid-19 and fall in oil prices. During the first quarter of 2020, the reported profit before tax was down by 48 per cent to USD 3.2 billion, and adjusted profit before tax decreased by 51 per cent to USD 3 billion as compared with the corresponding period of the last year. Led by adverse valuation adjustments in GB&M (Global Banking and Markets) and adverse market impacts in life insurance manufacturing, the reported revenue reduced by 5 per cent or USD 0.7 billion to USD 13.7 billion against the same period last year (Q1 FY19: USD 14.4 billion). Net interest margin (NIM) for Q1 FY20 was 1.54 per cent, a decrease of 5 basis points (bps) from Q1 FY19 and 2 basis points (bps) from Q4 FY19. Customer lending rose by 4 per cent against the Q4 FY19. Customer deposits increased by USD 47 billion in Q1 FY20.

Share Price Performance

Daily Chart as at May-22-20, after the market closed (Source: Refinitiv, Thomson Reuters)

HSBC Holdings PLC’s shares closed at GBX 379 on 22nd May 2020 and were down by 4.99 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 674.80 /GBX 373.05.

Valuation Methodology 
 

Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the EV/EBITDA multiple of the HSBA was 15.2x and the same multiple was lower as compared with the Banking industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Trajectory Holds Upside Potential
The Group enhanced support for customers through digital channels and also showed a good volume growth. In RWA, the company expects mid to high single-digit percentage growth in the year 2020.

Conclusion
In Q1 FY20, the elevated adjusted ECL (expected credit loss) charge stood at $3.0 billion against the Q1 FY19, mainly due to the effect of Covid-19 and weakening oil prices on the forward economic outlook. The company has faced challenging economic conditions in March 2020. The company looks promising and remains attractive to invest for the long term. The group has strong growth in both lending and customer accounts. The balance sheets stayed resilient, with a CET1 ratio of 14.6 per cent. The group also reported a robust funding and liquidity position with LDR (Loan-to-deposit ratio) of 72.2% and LCR (Liquidity coverage ratio) of 156%.

Over the four years (FY15 – FY19), the company’s revenue surged from USD 91,617 million in FY15 to USD 101,027 million in FY20. Compounded annual growth rate (CAGR) stood at 2.47 per cent.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX  379 (as on 22nd May 2020) with lower double-digit upside potential based 0.6x NTM Price/Book Value (approx.) on FY20E book value per share (approx.).

Polymetal International Plc – Precious Mining Company offering High-Quality Products

Polymetal International Plc (LON: POLY) is a Cyprus-based leading gold and silver producer with a high-quality, low-cost asset base, and operations in Kazakhstan and Russia.

Recent News
On 12^th May 2020, Polymetal International announced the agreement for a loan for 10 years of RUB 5.7 billion or USD 77 million (current exchange rate) at 5 per cent fixed rate with a fund for the Far East and Arctic Development. The proceeds will be used to finance construction activities at the Amursk POX-2 (pressure oxidation plant) for second stage development.

On 11^th May 2020, Polymetal International announced the sale of North Kaluga property for approximately USD 27 million of the total transaction value.

Solid Production Update (First Quarter of the Financial Year 2020)
On 20th April 2020, Polymetal International released an update on the production for the Q1 FY2020. The group has shown solid production results despite global uncertainty and disruptions due to Covid-19 outbreak.  The group has an improved LTIFR (Lost Time Injury Frequency Rate) of 71 per cent for the period and recorded two minor injuries. The group’s production of gold equivalent surged by 5 per cent to 391 Koz in Q1 FY2020, driven by improved performance from Varvara, Svetloye and Kyzyl. The group witnessed a decline in the planned grade from Voro and Omolon. Driven by high gold prices, the revenue surged by 9 per cent to USD 494 million in Q1 FY2020, while the sales volumes declined by 7 per cent, due to concentrate shipments slowdown to China due to coronavirus. The group has a net debt of USD 1.66 billion due to low sales volumes and seasonal advance purchases of consumables and diesel fuel. The group expect it’s gold equivalent production guidance to be 1.6 Moz as the group witnessed devaluation of Kazakh Tenge and Russian Rouble in starting of the year. POLY maintained its guidance for AISC of US$ 850-900/GE oz and for TCC of US$ 650-700/GE oz for full-year and will be revised along with H1 results. The group is committed to paying a dividend as per its dividend policy.

Share Price Performance

Daily Chart as of May 22nd, 2020, after the market close (Source: Refinitiv,Thomson Reuters)

Polymetal International Plc shares closed at GBX 1,700 on 22nd May 2020 and up by 0.50% versus the previous day closing price. Stock's 52 weeks High is GBX 1,758.00 and Low is GBX 814.90.

Valuation Methodology

 
Key Risks
 
Market risk, Production risk, Construction and development risk, Tax risk, Exploration risk, Health and safety risk, Environmental risk, Legal risk, Political risk, Currency risk, Liquidity risk, and Interest rate risk.
 
Conclusion
 
The Group reiterates its existing production guidance of 1.6 Moz of GE for the year 2020. In both years, the production will be weighted towards the second half due to seasonality. In 2020, the TCC is anticipated between US$ 650/GE oz and 700/GE oz, while AISC will be in the range of US$ 850-900/GE oz. The risk to operations is also due to the complex relation Russia currently has with the United States and European Union. Due to the strengthening of the US Dollar, the company had to face a negative impact on its earnings. For 2020, the company maintains a positive outlook, both in terms of free cash flow and earnings. Moreover, the company is trading near a 52-week high, raising doubts at its upside potential at current prices.
 
Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 1,700 (as on 22nd May 2020), with support from few catalysts needs to be evaluated at a later stage.
 
*All forecasted figures and Peers information has been taken from Refinitiv, Thomson Reuters.
*The “Buy” recommendation is valid for the current price as covered in the report (as on 26th May 2020).

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