HSBC Holdings PLC

HSBC Holdings PLC (LON: HSBA) is a FTSE 100 listed banking and financial services organisation that serves in around 64 countries.

On 2 August 2021, HSBA has scheduled to release its H1 FY21 results.

Investment Rationale – SELL at GBX 420.05

• On 18 June 2021, HSBC announced the disposal of retail business in France at an estimated pre-tax loss on sale of approximately US$2.3 billion.
• Due to the subdued interest rate, revenue declined by 5% in Q1 FY21 versus Q1 FY20.
• The resurgence of Covid-19 cases and reintroduced restrictions adversely impact volume and revenue assumptions.
• In Q1 FY21, the net interest margin and deposit ratio were lower than the industry median.
• From a technical standpoint, 20-day EMA (GBX 422.38) is sustaining above the current market price and reflecting a bearish price momentum.

Risk Assessments

• The global economic outlook appears to be uncertain with inflation and other major concerns across financial markets.
• Due to higher restructuring and other related costs, operating expenses increased by 9% on H1 FY20. The expenses can increase further with planned transformation programme and investment in technology.

Recent News

Debt Issuance: On 29 June 2021, HSBA issued 3.40% Notes due 2027 for CNH2,750,000,000.

Q1 FY21 Financial Highlights (for the three months ended 31 March 2021, as on 27 April 2021)

(Source: Company Website)

• The Group maintained a conservative position on liquidity, credit, funding, and capital.
• During Q1 FY21, profit after tax surged 82% year-on-year; however, reduced revenue reflected continued low-interest rates.
• The net interest margin was down by 33 basis points in Q1 FY21 versus Q1 FY20.
• As of 31 March 2021, the liquidity coverage ratio was 143% and CET1 ratio was 15.9%.

Share Price Chart

 (Data Source: REFINITIV, Analysis by Kalkine Group)

Valuation Methodology: Price/Book Approach (FY21) (Illustrative)

Conclusion

The disposal of retail business in France will lead to an additional US$0.7 billion impairment of goodwill and reduction of common equity tier 1 ratio of approximately 15 basis points. Moreover, the continued economic uncertainty due to the threat of the Covid-19 pandemic and inflationary conditions keeping the outlook gloomy in the short term. In addition, business sentiments are dampened by heightened geopolitical tensions following Brexit. Therefore, it prudent to liquidate the position at the current levels. The stock made a 52-week High and Low of GBX 462.55 and GBX 281.50, respectively.

Based on the volatile market scenario, lower interest rates, bearish price momentum, coupled with the unfavourable valuation conducted above, we have given a “SELL” recommendation on HSBC Holdings PLC at the current market price of GBX 420.05 (as on 13 July 2021, 7:15 AM GMT), while we look forward reviewing the H1 FY21 results. 

Caretech Holdings PLC

Caretech Holdings PLC (LON: CTH) is a FTSE AIM UK 50 Index listed provider of education and specialist social care services. The Company provides social care services on behalf of the health service commissioners and local authorities across the United Kingdom.

Investment Highlights - SELL at GBX 629.00

• CTH’s stock price has yielded a remarkable growth of over 54% in the past year, giving an opportunity to book profit.
• Under the Foster Care division, revenue declined by 8.3% in H1 FY21 due to lower capacity amid Covid-19 restrictions.
• From a technical perspective, stock price is hovering close to the upper Bollinger band, while 14-day RSI (67.10) is reiterating the overbought position.
• In terms of valuation multiples - EV/EBITDA and Price/Earnings seems quite overvalued against the Healthcare sector.
  

Key Risks

• Health and safety breach can significantly impact the reputation of the brand.
• As Commissioners regularly review the services, it must be served at a fair value.
• Moreover, the failure to adhere to regulatory standards, government policies, and retaining the right talent can cause potential risk to the growth of the Company.

Interim Results for the six months ended 31 March 2021 (as on 17 June 2021)

 (Source: Company Website)

• During H1 FY21, the Group shown strong operational and financial performance as revenue and EBITDA increased by 16.5% and 19.1%, respectively, versus H1 FY20.
• At the end of H1 FY21, the Company reported a reduced net debt of £263.1 million and leverage of 2.8x net debt/ adjusted EBITDA.
• The operating cash conversion remained strong at 99.7% in H1 FY21, and thus, the Company increased an interim dividend to 4.6 pence (H1 FY20: 4.0 pence).

Share Price Chart

 (Source: REFINITIV, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

The stock price has topped its 52-week high last week and it seems quite overstrained now amid rising Covid-19 uncertainties. Moreover, the Company still has high leverage which can lead to a hefty finance cost. As the stock has given a stellar return in the past year, it is giving an opportunity to book profit, and reinvest capital plus gains when due corrections are done. The stock made a 52-week high and low of GBX 633.85 and GBX 400.00, respectively.

Based on the uncertain outlook, decent notional gains, operational challenges, macroeconomic instabilities, and unfavourable valuation conducted above, we have given a “SELL” stance on Caretech Holdings PLC at the current price of GBX 629.00 (as on 13 July 2021, 7:06 AM GMT), while we look forward to reviewing the upcoming developments of the Company for reinvestment.

*All forecasted figures and Peer information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.