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Earlier in July, HBSC (LSE:HSBA) replaced AstraZeneca as the FTSE 100’s most valuable company. Since 23 June, the former’s share price has risen 10% whereas the latter’s remained almost unchanged. Therefore, the switch at the top has more to do with an increase in the bank’s market -cap rather than a loss of value for the pharmaceutical giant.
But is it too late to buy the UK’s new number one? Let’s take a look.
| The UK’s £100bn+ companies | Stock | Market cap (£bn) |
|---|---|---|
| 1 | HSBC | 165.5 |
| 2 | AstraZeneca | 160.5 |
| 3 | Shell | 141.1 |
| 4 | Unilever | 109.0 |
An attractive valuation?
According to figures provided by the London Stock Exchange, HSBC’s grown its earnings per share by 24.3% since July 2020. Of the FTSE 100’s five banks, this is the fastest.
It also does well when looking at the most commonly-used earnings-based valuation measure. Based on its historic price-to-earnings ratio, it’s currently the cheapest.
Using a balance sheet approach, it’s placed third with Barclays and Standard Chartered having a lower price-to-book ratio.
The dividend position’s more complicated. The bank made a special payout following the disposal of its Canadian business last year. Excluding this, its dividend was $0.66 (48.7p at current exchange rates) implying a current yield of 5.1%. Among the Footsie’s banks, this is the highest.
Fans of share buybacks will also be pleased with the $2bn programme that’s just been completed and the $3bn one that’s underway.
A positive outlook
In 2024, the bank reported net interest income of $32.7bn. For 2025, despite the uncertainty caused by President Trump’s trade policy, it’s targeting $42bn.
When reporting its first quarter results, it said a “plausible downside” scenario would cost it $500m in additional bad debts. However, at the time, it had yet to see an impact. We’ll know more when the bank reports its interim results on 30 July.
And over the next three years, it hopes to achieve a return on tangible equity (excluding notable items) of a “mid-teens” percentage. By comparison, it was 16% in 2024.
But the bank’s been around for 160 years. It’s come through many difficult periods before and I’m optimistic it will survive plenty more.
Despite its recent share price rally, it looks to me as though the stock offers good value. But the brokers disagree. Their average 12-month price target is 926p, around 2% below its current level.
They could have concerns over the bank’s exposure to the commercial real estate market in China. But there’s some evidence that the sector’s slowly recovering. If this happens, there might be scope for the bank to reverse some of its earlier provisions for bad loans.
Also, interest rate cuts could affect HSBC’s margin. It’s already the lowest of the Footsie’s banks and fell in 2024. On the flip side, lower borrowing costs reduce the possibility of further loan defaults.
But with its strong balance sheet, global presence and plans to expand further in Asia which, in recent decades, has been the fastest-growing continent, means — in my opinion — it’s well-positioned to grow. Therefore, investors could consider putting the UK’s most valuable listed company in their portfolios.
