HSBC Holdings Plc

HSBC Holdings Plc (LON: HSBA) is a banking company. The company provides retail banking, commercial banking, global banking & markets, and global private banking. The company offers various banking products and services across the geographies.

Board Changes
On 17th March 2020, HSBC Holdings announced the selection of Noel Quinn. Mr Quinn will hold the responsibilities of group’s CEO (Chief Executive Officer) effective immediately.

Financial Highlights – Financial Year 2019 (31^st December 2019, USD, million)

(Source: Annual Report, Company Website)
 
For the financial year ending 31^st December 2019, the company’s reported revenue grew by 4 per cent to USD 56,098 million as compared to USD 53,780 million in the fiscal year 2018. The adjusted revenue stood at USD 55,409 million in FY2019 versus USD 52,331 million in FY2018. Reported profit before tax during the period was USD 13,347 million against USD 19,890 million in FY2018 due to a goodwill impairment of USD 7.3 billion. The adjusted profit before tax stood at USD 22,212 million in FY2019 versus USD 21,182 million in the financial year 2018. Reported profit after tax in FY2019 was USD 8,708 million against USD 15,025 million in FY2018.  Profit attributed to ordinary shareholders declined by 53 per cent to USD 5,969 million in FY2019 versus USD 12,608 million in FY2018. The basic and diluted earnings per share stood at $0.30 in the financial year 2019 versus $0.63 in the financial year 2018.

Share Price Performance

Daily Chart as of March 20^th, 2020, before the market close (Source: Thomson Reuters)

HSBC Holdings Plc shares were trading at GBX 501.70 at the time of writing before the market close (at 9:20 AM GMT) on 20^th March 2020 and up by 0.34% versus the previous day closing price. Stock's 52 weeks High is GBX 687.70 and Low is GBX 432.80.

Valuation Methodology

 
Conclusion
The company’s financial performance has decent show in the fiscal year 2019. It incurred a goodwill impairment of USD 7.3 billion. The company remains active against future movement of loan costs and international trade tensions, as it may result in downside risks for shareholders. The company has prepared for the UK’s exit from the European Union and to provide hassle-free services to all the clients based in Europe and the UK. The company is also looking forward to rebalancing its capital. In the UK, the company is looking forward to transforming itself digitally, growing cards and payments channel and the emergence of Fintech. The outbreak of COVID-19 adversely impacted the performance of the company, primarily in the Chinese region and group expects economic slowdown, which will result in the decline in revenue. The company looks promising and remains attractive to invest for the long term.
Based on the decent prospects and supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 498.25 (as on 20th March 2020, before the market close at 9:30 AM GMT) with a lower double-digit upside potential based on 0.75x NTM Price/Book Value (approx.) on FY20E book value per share (approx.).

Fresnillo Plc

Fresnillo Plc (LON: FRES) is a Mexico-based leading precious metals company. The company produces mainly gold and silver from mines.

Financial Highlights – Financial Year 2019 (31^st December 2019, USD, million)

(Source: Annual Report, Company Website)
 
For the financial year ending 31^st December 2019, driven by higher prices of gold and silver, the group’s total revenue increased by 0.8 per cent to USD 2,119.6 million from USD 2,103.8 million in the financial year 2018. The adjusted revenue increased to 1.2 per cent from USD 2,243.4 million in FY2018 to USD 2,270.2 million in FY2019. The gross profit declined by 40.9 per cent to USD 461.7 million in FY2019 from USD 780.7 million in FY2018. The EBITDA stood at USD 674 million in FY2019 versus USD 915.1 million in FY2018, reflecting a decline of 26.3 per cent for the period. The PBT (profit before tax) declined by 63.1 per cent to USD 178.8 million in FY2019 from USD 483.9 million in FY2018. The profit for the year stood at USD 205.8 million in FY2019 versus USD 350 million in FY2018, reflecting a decrease of 41.2 per cent. The basic and diluted earnings per share (excluding post-tax) declined by 49.9 per cent to US$0.231 in FY2019 from US$0.461 in FY2018.

Share Price Performance

Daily Chart as of March 20^th, 2020, before the market close (Source: Thomson Reuters)

Fresnillo Plc shares were trading at GBX 599.20 at the time of writing before the market close (at 9:29 AM GMT) on 20^th March 2020 and up by 5.87% versus the previous day closing price. Stock's 52 weeks High is GBX 921.20 and Low is GBX 456.51.

Valuation Methodology

Conclusion
The company has shown a decent financial performance in the financial year 2019.Although the revenue increased, while the bottom-line performance declined for the period. The company’s profitability has declined butremained at healthy levels. In 2020, the gold production expected to be in the range of 815-900 koz and the silver production will be in between 51 moz and 56 moz. The company started to see the impact of the performance enhancement plan, which comprises dilution control and raising development rates, intensive infill drilling to improve the certainty of the geological model, together with actions to address contractor equipment availability. The company’s development pipeline is progressing well, construction of new mines is on track. The company’s outlook is positive for the long term, and this company provides an opportunity to invest for good returns. The company is also working on dilution control and raising development rates which could improve the overall performance of the business.

Based on the above rationale and supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 566.00 (as on 19th March 2020) with a high single digit-upside potential based on 8.60x NTM Price/Cash Flow (approx.) on FY20E cash flow per share (approx.).
 
 
*The “Buy” recommendation is valid for the current price as covered in the report (as on 20^th March 2020).
*All forecasted figures and Peer information have been taken from Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
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.
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. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. 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 do 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 in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.