What is HSBA.L's Intrinsic value?

HSBC Holdings PLC (HSBA.L) Intrinsic Value Analysis

Executive Summary

As of May 23, 2025, HSBC Holdings PLC's estimated intrinsic value ranges from $888.04 to $1259.27 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $888.04 +0.8%
Dividend Discount Model (Stable) $1259.27 +43.0%

Is HSBC Holdings PLC (HSBA.L) undervalued or overvalued?

With the current market price at $880.60, the stock appears to be moderately undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate HSBC Holdings PLC's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 4.0% 4.5%
Equity market risk premium 6.0% 7.0%
Adjusted beta 0.95 1.24
Cost of equity 9.7% 13.6%
Cost of debt 5.0% 5.0%
Tax rate 21.0% 22.4%
Debt/Equity ratio 2.27 2.27
After-tax WACC 5.7% 6.9%

Valuation Methods

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 45.2%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 11.6%
  • Long-term growth rate: 0.5%
  • Fair value: $888.04 (0.8% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 13.6% (Low) to 9.7% (High)
  • Long-term growth rate: 0.0% (Low) to 1.0% (High)
  • Fair value range: $1,107 to $2,238
  • Selected fair value: $1259.27 (43.0% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $154624M
Enterprise Value $379010M
Trailing P/E 5.43
Forward P/E 8.13
Trailing EV/EBITDA 0.00
Current Dividend Yield 830.57%
Dividend Growth Rate (5Y) 70.51%
Debt-to-Equity Ratio 2.27

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Dividend Discount Model (Multi-Stage) 57% $177.61
Dividend Discount Model (Stable) 43% $188.89
Weighted Average 100% $1047.14

Investment Conclusion

Based on our comprehensive valuation analysis, HSBC Holdings PLC's weighted average intrinsic value is $1047.14, which is approximately 18.9% above the current market price of $880.60.

Key investment considerations:

  • Historical dividend growth of 70.51%

Given these factors, we believe HSBC Holdings PLC is currently moderately undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.