Current turnover troubles a mere blip
Although banking giant HSBC is currently suffering heavily from the effect of fresh macroeconomic volatility, in my opinion the business remains a lucrative long-term growth selection.
The companys extensive expense-slashing drive continues to trundle along, but the result of rising labour costs and infrastructure upgrades continues to push costs higher. Against this backdrop the business saw its cost-efficient ratio rise back to 58.2% during January-June from 54.9% in the corresponding 2013 period.
Combined with struggling top-line performance due to current economic cooling in developing regions and reduced investor appetite in financial markets, HSBC is struggling to print sustained profit growth indeed, the firm saw pre-tax profit crumble 12% during the first half to $12.3bn.
Still, in my opinion the bulk of these revenues issues are merely cyclical, and I expect the banks impressive pan-global presence to blast earnings higher over the long-term as market sentiment improves and economic growth in emerging geographies hot up again.
HSBC operates in more than 74 countries across the world, and generates more than two-third of group profits from the growth hub of Asia alone. And with a strong bias towards the continental engine rooms of mainland China and Hong Kong, I believe that galloping population levels, rising incomes and increasing demand for banking products in these places should deliver robust turnover growth in the coming years.
A great value growth pick
In the meantime, City analysts expect the business to follow growth of 14% last year with a more muted expansion of 4% in 2014 and 7% in 2015. At face value these figures may not be jaw-droppingly impressive, but given HSBCs patchy earnings performance following the 2008/2009 financial crisis, signs that the firm may have finally turned the corner are clearly welcome.
On top of this, these growth projections also leave the business changing hands at a P/E multiple of 12.2 times prospective earnings for this year, well below a wider average of 15.6 for the complete banking sector and falling easily within territory under 15 times which is considered attractive value. And next years further growth still lower to just 11.4.
While predicted growth during the medium term can hardly be described as electrifying, I believe that HSBCs splendid exposure to emerging markets combined with the eventual effects of current restructuring should deliver stupendous earnings expansion in the future.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.