A bit like the Grand Old Duke of York in the nursery rhyme, the HSBC (LSE:HSBA) share price was up and down in early trading today (19 February).
At first, it was up nearly 1%. But then it fell 1.5%, before recovering again. It’s almost as though investors were unsure what to make of the bank’s 2024 results.
But the headline figures look good to me.
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Beating expectations
For the year ended 31 December 2024, it reported a profit after tax of $25bn, an increase of $440m (1.8%) on 2023. This includes some notable one-off items, such as a profit on disposal of its operations in Canada ($4.8bn) and a loss arising from its decision to exit Argentina ($6.1bn). Exclude these and the picture looks even better. Indeed, the reported result was marginally ahead of the consensus forecast of analysts ($24.8bn).
And the bank used its considerable assets more efficiently than brokers were expecting. Excluding exceptional items, the return on average tangible equity (ROTE) was 14.6% (forecast: 14.4%). For comparison, this is comfortably ahead of Barclays (10.5%), the other FTSE 100 bank with a global reach.
And although the bank’s net interest margin fell to 1.56% (2023: 1.66%), this exceeded forecasts as well (1.52%). The fall was blamed on “increased deployment of our commercial surplus to the trading book”. This sounds like a deliberate decision to cut interest rates to me, and shows how competitive the banking sector can be.
But not all of its divisions are performing well. Profits from its commercial banking arm were down nearly 10%.
Looking further ahead
The group’s chief executive described the results as “strong” and said they provided a “firm financial foundation” on which to build.
Indeed, the bank’s expecting to achieve a ROTE in the “mid-teens” from 2025-2027. Some of the anticipated improvement will be driven by a huge efficiency drive that’s forecast to yield savings of $300m in 2025, and $1.5bn in 2026.
The Chinese real estate market is also showing signs of picking up with prices starting to rise. HSBC is heavily exposed to the sector but recent statistics suggest the market’s now recovering.
And income investors will be happy that the group increased its payout. Its total dividend for 2024 will be $0.87. Excluding the one-off payment of $0.21 following the sale of its Canadian business, shareholders will receive $0.66 (52.1p at current exchange rates) a share. The stock’s therefore offering a healthy yield of 5.9%. Fans of share buybacks will also be pleased to learn that the bank intends to spend $2bn buying its own shares in 2025.
A muted response
But the reaction of investors during the first hour of trading suggests there are marginally more sellers than buyers.
Perhaps some of them have decided to ‘cash in’ after the share price has increased 39%, since February 2024. Or maybe it’s going to take time for the contents of the mammoth 460-page annual report to be digested.
Okay, I don’t think the results were particularly exciting. But there’s lots to be positive about and the outlook looks good to me. For those looking for a stock that ‘s likely to deliver few surprises — and one that offers an above-average yield — I think HSBC is one that investors could consider.
