HSBC’s largest shareholder supports a spinoff

The revival of the spinoff of the group’s Asian operations makes little sense from an investor standpoint in our view. On the other hand, it could make sense to prepare for the potential implications of the emergence of a bipolar world.

More confident about achieving the 2023 objectives

The group posted a reassuring set of results. Management’s reiterated guidance for both 2022 and 2023 confirms that, if central banks do not overreact, inflation will create a supportive environment making the 2023 financial objectives easier to achieve.

Accelerated cost of risk normalisation and restructuring effort

The quarter saw an accelerated cost of risk normalisation driven by China’s commercial real estate. 2022 will be impacted by an accelerated but ultimate restructuring effort, mitigated by expected gains from interest rate hikes. Cost savings and interest rates could eventually enable the group to meet its cost of equity in 2023 if the operating environment does not deteriorate in the meantime.

Record provision releases and new share buyback programme

The quarter enjoyed record provision recoveries and strong fee income generation. The coming quarters should remain supportive. The accelerated capital accumulation enabled management to announce a new $2bn share buyback.

Ongoing net provision releases

The quarter enjoyed further net provision releases whereas the pre-provision performance came in line with our expectations. The group is on track to meet its mid-term financial objectives.

Provision releases offset by negative equity adjustments

The quarter enjoyed massive loan provision recoveries and strong fee income generation. Unfortunately, the quarterly earnings generation was fully offset by negative equity adjustments, leaving the group’s equity position unchanged. Management is cautiously optimistic on the remainder of 2021 as illustrated by the delayed decision on capital distribution in spite of a strong equity position.

Increased cost savings and accelerated cost of risk normalisation

The group posted a good set of results supporting management’s view of a return to decent profitability levels as soon as 2022, based on a full normalisation of the cost of risk and ongoing restructuring efforts. An increase in interest rates would help the group to meet its cost of equity quicker.

Too soon to claim victory

HSBC’s third-quarter results unsurprisingly comfortably beat expectations on the back of an end to provision front-loading. On the other hand, as a cash-rich bank, the top-line was strongly impacted by lower rates. The group intends to accelerate its restructuring/repositioning which should be facilitated by Asian growth opportunities but reckons that it will be hard to recover lost revenue. The conservative stance on capital distribution confirms that it is too soon to claim victory.

Instrumentalised bank

HSBC’s future should be clarified as soon as the US and China come back to the negotiation table. This will not happen before the US elections are over. In the meantime, HSBC will continue to be instrumentalised and its share price will remain under pressure.

Increased cost of risk guidance

The group’s earnings surprise was driven by goodwill impairments. On the negative side, management upgraded, albeit slightly, its full-year loan impairments guidance and warns about revenue and CET1 pressure. It also reckoned that the tensions between the US and China will impact the group.

HSBC's parents divorce

Beijing’s forced implementation of the Hong Kong security law threatens the region’s financial hub status. This is a potential game-changer for HSBC but it does not seem to come as a surprise for the group as confirmed by the acceleration of its investments in China or its efforts to secure a leading position on the RMB.

Asia’s defensiveness to be confirmed

As expected, the first quarter results saw strong COVID-19 and oil prices related provisioning efforts. However, it is worth mentioning that the group’s projections are based on a rapid recovery in Asia. This is what makes HSBC potentially defensive. However, this is a best case scenario in our view.

Cenkos: Healthcare Sector - Ward Round

Weekly round-up of AIM-listed healthcare news. Venture Life Group, GENinCode, Kromek, Alliance Pharma, Polarean Imaging, Benchmark Holdings, Ondine Biomedical, Verici Dx, Faron Pharmaceuticals, Avacta Group, Abingdon Health, Open Orphan, Belluscura, Hutchmed (China), Oxford Biodynamics

SHORE CAPITAL - H&T Group+ (HAT, House Stock, 322p)

Earnings in line, NAV ahead, caution being exercised

Urban Logistics REIT (“ULR”) has delivered a solid FY22 performance – deploying capital apace and driving strong returns through active asset management. Earnings and dividend are both in line vs SCMe. EPRA NAV is 190p (+7% vs SCMe); as yield compression came as a bonus. Caution is being exercised in deploying remaining capital, which impacts FY23e earnings only. We upgrade EPRA NAV by 14-20% incorporating some (but not all) recent yield compression. We increase our Target Price to 210p (FY23e E

FY22 – Strong Operating Result & On Track for Targets

Mercia Asset Management reported FY22 results, with a significant uplift in adj. operating profit to £8.4m, driven by strong management fee margins of >2% on stable FuM as well as strong finance income during the year. Group AuM has grown to >£1bn post period end, driven by fundraises across the Northern VCTs. The Group is well set to achieve its Mercia 20:20 Vision, with ~£27m (~46%) of its cumulative three-year PBT target delivered in year one. We increase our adj. EBITDA forecasts by 1-26% on

Hybridan Small Cap Feast 01/07/22

1 July 2022 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectives

Right Tech, Right Touch, Right Service Level

Argentex Group (“AGFX” or the “Group”) is a regulated, commercial FX specialist, offering a range of service-led and technology-enabled FX products to corporate, institutional and HNW clients. The Group’s core business has a strong growth track record and we expect a normalising market environment post-COVID to support organic growth within this. Additionally, we see attractive opportunities across its newly launched platform with a range of technology-enabled products as well as its continuing

Auctus on Friday - 01/07/2022

AUCTUS PUBLICATIONS ________________________________________ Arrow Exploration (AXL LN)C; Target price of £0.45 per share: Another well delivers flow rate above expectations – The RCS-1 well was flow tested at oil rates of up 1,872 bbl/d (936 bbl/d net to Arrow) of 30 API crude from the C7B sands. The zone was tested for 33 hours at an average oil rate of 1,076 bbl/d (538 bbl/d net to Arrow) with no formation water. Production will start next week at ~1,000 bbl/d (500 bbl/d net) in order to mini

2H22 – Good NAV Growth & Attractive Opportunities

Augmentum Fintech has delivered a strong finish to FY22, with NAV per share up 19% YoY and +9% HoH to 155.2p, driven by both investments and positive fair value changes across the majority of its portfolio companies. The 23% IRR since IPO is above the Group’s 20% Internal Target Return, demonstrating overall attractive investment performance. Post-period end The Group has invested £4.0m in new portfolio company Kenbi and the £43m proceeds from the sale of its stake in ii strengthens AUGM’s cash

LIBERUM: Real Estate Investors* - Further profitable sales set to drive capital return strategy

Morning Note – 6 July 2022

Cenkos: Marlowe Plc -- Record organic growth

Marlowe delivered an impressive set of FY22A results, with underlying organic revenue growth of 9%, Adj EBITDA margins up 240bps to 18.6%, and Adj EBITDA of £54.4m (ahead of our £50.7m forecast). We make minor updates to our FY23E forecasts (Adj Diluted EPS increases 1% to 49.6p) and release new FY24E forecasts. Given the strength of Marlowe's business model, its defensive nature (non-discretionary products and services; 85%+ recurring revenue), the group's continued positive momentum (including

Hybridan Small Cap Feast 30/06/2022

Dish of the day Joiners: Visum Technologies has joined the AQSE Growth Market. The Company's business is to own and operate an "on-ride" video and photographic camera system that it sells and/or licenses to customers (being theme parks, ride manufacturers, souvenir imaging providers, and other leisure operators). Leavers: No Leavers Today. What’s cooking in the IPO kitchen? Immediate acquisitions (IME.L) is to re-join AIM via a Reverse Takeover of Fiinu Holdings Limited. Once complete the Compan

Palace Capital* - Strategy sharpened, 5% buyback commences

Further to its strategic review, Palace Capital intends to focus on becoming an ESG driven, regional office market specialist. To that end the company has announced a new £46.5m property disposal programme including its entire industrial property portfolio with the proceeds to be reinvested into the office sector. Palace Capital has also announced a buyback for up to 5% of its shares and continues to review its cost base. The outcome of the strategic review is to sharpen the focus on themes mana

Copyright Royalty Board III Decision

The final decision on CRB III (see below) on streaming revenues is positive for Songwriters, Music publishing and Hipgnosis (SONG). The decision will result in addition revenues being paid to SONG over the coming periods. We view the ruling as positive and evidence of a continuing shift in the understanding of the value of a Songwriter’s contribution to a hit record and the willingness of industry stakeholders to recognise it. YTD SONG has de-rated significantly and currently trades on a 23.8% d

Cenkos: Professional Services -- The week that was

Stocks in focus this week are Personal Group, Johnson Service Group, Capita and Mears