HSBC Holdings Plc – Reflecting Strong Growth in Lending and 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 services.

The Company will announce interim results on 3^rd August 2020.

Board Changes

On 1^st July 2020, HSBC Holdings announced the selection of Eileen K Murray as independent Director non-executive. She will also join the Nomination & Corporate Governance Committee, Group Risk Committee and Group Audit Committee.

First Quarter of 2020 Trading Update (as on 28th April 2020)

Overall results reflected a challenging economic condition in March 2020; however, the business showed some resilience. In the first quarter of 2020, the reported profit before tax decreased by 48% to USD 3.2 billion against the same period last year. Driven by an adverse valuation adjustment in GB&M (Global Banking and Markets) and adverse market impacts in life insurance manufacturing, the reported revenue reduced by 5% or USD 0.7 billion to USD 13.7 billion against USD 14.4 billion in Q1 FY2019. Net interest margin (NIM) for the first quarter of 2020 stood at 1.54%, a decline of 5 basis points versus Q1 FY2019 data and 2 basis points versus Q4 FY2019 data. The Group experienced robust funding, and sound liquidity profile, with loans to deposits ratio stood at 72.2%, and LCR (Liquidity coverage ratio) remained at 156%.

Share Price Performance


Daily Chart as of July 10^th, 2020, after the market close (Source: Refinitiv,Thomson Reuters)

HSBC Holdings Plc shares were closed at GBX 377.80 on 10^th July 2020. Stock 52 week High and Low were GBX 673.70 and GBX 369.35, respectively.

From the technical standpoint, 90-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology


*Peers: Standard Chartered Plc, Close Brothers Group Plc, OneSavings Bank Plc and Lloyds Banking Group Plc.
*Currency Exchange rate taken for 1 USD = 0.79171 GBP.
 
Key Risks

The Company operates in multiple geographies, and its profits can be impacted negatively due to foreign exchange rate fluctuations. To meet the new regulations, the Group needs to implement new processes, failing to do so would increase the compliance risk.

Conclusion

The Group witnessed a good performance in January and February, but the impact of COVID-19 had a significant adverse impact on the performance in March 2020. The Company had faced a challenging economic condition in March 2020. The Company looks promising and remains attractive to invest for the long term. Decent growth was reported in both lending and customer accounts. The balance sheet stayed resilient, with a CET1 ratio of 14.6 per cent. The Group has shown impressive growth in the last four years, which indicates the financial resilience and sound business model of the Group.

Over the course of 3 years (FY16 - FY19), the Company’s net income surged from USD 2,479 million in FY2016 to USD 7,383 million in FY2019. Compounded annual growth rate (CAGR) stood at 43.88 per cent.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing price of GBX 377.80 (as on 10July 2020) and will recommend fresh buying at the right time.

Barclays Plc - Robust Financial Position, Supported by the Diversified Business Model

Barclays Plc (LON: BARC) is engaged in the retail and wholesale banking, credit cards, investment banking, wealth, and investment management services.

The Company will release the half-year 2020 results on 29^th July 2020.

Update on Trading Performance for Q1 FY2020

The Group has shown strong operating performance, and the return on tangible equity (RoTE) stood at 5.1% for the period, despite the impact of Covid-19 outbreak. Led by strong performance in Corporate and Investment Bank, the total income increased by 20% in Q1 FY20 versus Q1 FY2019 data. CET1 ratio for Q1 FY20 decreased to 13.1% (December 2019: 13.8%), primarily reflecting RWA (Risk-Weighted Assets) growth partially offset by profits and cancellation of dividend. The TNAV (tangible net asset value) per share stood at 284 pence in the first quarter of the financial year 2020 (31st December 2019: 262 pence).

Share Price Performance


Daily Chart as of July 10^th, 2020, after the market close (Source: Refinitiv,Thomson Reuters)

Barclays Plc shares were closed at GBX 117.76 on 10^th July 2020. Stock 52 week High and Low were GBX 192.99 and GBX 73.04, respectively.

From the technical standpoint, 90-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology              



Key Risks

CC&P (Consumer, Cards and Payments) credit impairment charges surged to £885 million, driven by forecast deterioration in macroeconomic variables in the COVID-19 scenario. In order to preserve capital for serving its customers, Barclays can cancel full-year dividend and suspend capital returns policy.

Conclusion

The Group’s performance in 2020 is expected to show the challenging environment, primarily due to the impact of Covid-19. The client flow for Markets business continues to be at healthy levels for the period. The diversified customer base of customers plays a critical role in the growth of the bank. Barclays is planning to increase the customer reach and enhance the market position. The Bank is also planning to diversify the business with less capital-intensive structure. The Consumer, Cards & Payments (CC&P) and Barclays UK (BUK) are expected to show headwinds for remaining FY2020, due to macroeconomic downturn caused by lower interest rate and impact of the COVID-19 pandemic.

Over the course of 3 years (FY16 - FY19), the Company’s net income surged from  GBP 2,080 million in FY2016 to GBP 3,274 million in FY2019. Compounded annual growth rate (CAGR) stood at 16.32 per cent.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing price of GBX 117.76 (as on 10July 2020) and will recommend fresh buying at the right time.

Bank of Georgia Group Plc - Serving Over 2.5 Million Clients, With Impressive Track Record

Bank of Georgia Group Plc (LON: BGEO) is a United Kingdom-based holding company, the new parent company of BGEO Group Plc. The company’s business is divided into geographic-based operations.

Recent News

On 7^th July 2020, Bank of Georgia Group signed a loan guarantee agreement for EUR 60 million with EIB Group (European Investment Bank Group) under InnovFin Guarantee (the InnovFin SME Guarantee Facility).

Financial Highlights – Solid Operating Income in Q1 of the Financial Year 2020

(Source: Quarterly Report, Company Website)
 
In the first quarter of the financial year 2020, the net interest income increased by 3.7 per cent to GEL 197,080 thousand (Q1 FY2019: GEL 189,981 thousand). Despite the impact of covid-19 for the period, the operating income remained strong and increased by 6.1 per cent to GEL 274,480 thousand in the first quarter of the financial year 2020 (Q1 FY2019: GEL 258,714 thousand). The reported an LBT (loss before tax) and one-off costs of GEL 112,975 thousand in Q1 FY2020 versus a PBT (profit before tax) and one-off costs of GEL 122,748 thousand in Q1 FY2019. The Group’s loss stood at GEL 99,945 thousand in the first quarter of the financial year 2020 versus a profit of GEL 101,972 thousand in the Q1 FY2019. The cash balance surged by 29.7 per cent to GEL 1,507,142 thousand as on 31st March 2020 (31^st March 2019: GEL 1,162,168 thousand). The loan book and client deposits increased by 37.3 per cent and 29.1 per cent, respectively, on a year-on-year basis.

Share Price Performance


Daily Chart as of July 10^th, 2020, after the market close (Source: Refinitiv,Thomson Reuters)

Bank of Georgia Group Plc shares were closed at GBX 1,044.00 on 10^th July 2020. Stock 52 week High and Low were GBX 1,845.00 and GBX 690.00, respectively.

From the technical standpoint, 90-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology


*Peers: TCS Group Holdings Plc, Paragon Banking Group Plc, Stanbic IBTC Bank Plc and TBC Bank Group Plc.
*Currency Exchange rate taken for 1 GEL = 0.25889GBP.

Key Risks
To meet the new regulations, the group needs to implement new processes, failing to do so would increase the compliance risk. The sector is exposed to political, financial and operational risks, each of which has the potential to significantly impact company/industry performance.

Conclusion
BGEO will continue to operate with the National Bank of Georgia and the Government of Georgia to take suitable measures for COVID-19. It is also expanding the footprint of the banking business in Georgia. The Company is seeking to gain benefit from the growth in the Georgian economy via its Retail Banking and Corporate Investment Banking divisions.The Company’s cost management techniques had benefited both Retail and Corporate Investment Banking businesses. The Group is looking forward to becoming a leading organisation in Georgia not only in terms of financial performance but also as an innovative company with digital leadership and regional wealth management.

Over the course of 3 years (FY16 - FY19), the Company’s net income surged from  GEL 398.5 million in FY2016 to GEL 497.70 million in FY2019. Compounded annual growth rate (CAGR) stood at 7.69 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 1,044.00 (as on 10 July 2020), with single-digit upside potential based 0.90x NTM Price/Book Value (approx.) on FY20E book value per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
* The “Buy” recommendation is valid for the current price as covered in the report as on 13^th July 2020.
*Dividend Yield may vary as per the stock price movement.

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