Banking giant HSBC Holdings (LSE: HSBA) reported its Q1 2024 earnings today (30 April) and the market liked what it saw. As I write, the HSBC share price is up 3.3% to 690p and at a five-year high!
I’ve been building a position in this FTSE 100 bank stock all year. Was there anything announced to give me pause for thought? Let’s take a look.
A solid quarter
There were a couple of surprises in the report. The first was that quarterly revenue came in at $20.8bn, up 3% from Q1 2023, but much higher than analysts were expecting ($16.9bn-$18.1bn).
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Pre-tax profit was down 2% though, to $12.7bn (£10.1bn), but was also another beat on estimates (just). This included a $4.8bn gain on the sale of its Canada business and a $1.1bn hit on plans to sell its Argentina operation.
Excluding notable items, its annualised return on average tangible equity (RoTE) was 16.4%. This is consistent with its mid-teens target for 2024.
One thing to note is that costs are rising due to technology investments and the impact of inflation.
However, I think investors are relieved that there were no more shock one-off charges like the last quarter when the Asia-focused firm wrote down its stake in a Chinese bank by $3bn.
CEO Noel Quinn said: “We completed the sale of our Canada business and agreed the sale of our Argentina business, both of which allow us to focus on markets with higher value international opportunities. Our good profit performance of $12.7bn in the first quarter has enabled us to continue the trend of rewarding our shareholders.”
That’s certainly right. The bank announced a new $3bn share buyback programme and a first interim dividend of $0.10 per share, as well as a special dividend of $0.21 following the Canada sale.
The boss is stepping down
The second and bigger surprise however, is that the CEO is retiring once a replacement’s found.
In his nearly five years, he has overseen the sale of assets in the US, Canada and Europe, with the aim of focusing more resources on the high-growth markets of Asia.
Investors have liked this strategic pivot as we can see by the share price’s five-year high. However, this leadership change might present an element of risk, as we don’t know what the strategy of the new CEO will be.
Personally, I’m not too worried. From what I’m reading, CFO Georges Elhedery is likely the leading internal candidate for the job. So I think continuity is on the cards, with the same focus on Asia’s high-growth markets (particularly wealth management).
Will I continue buying the stock?
The price-to-earnings (P/E) multiple is just 7.5 and the price-to-book (P/B) ratio is 0.95. So the stock still looks good value to me.
Granted, interest rates are likely heading lower at some point, which could become a bit of a headwind. And China’s economy is still a wildcard here.
On the whole though, there was a lot to like about this report. I remain very bullish on HSBC’s long-term prospects. The dividend yield’s 7.1%, even after the shares have risen to a fresh multi-year high.
I’m going to continue building out my position on share price dips this summer.
