Could this be an opportunity for contrarian investors to buy into the global bank? Or, is a turnaround in its performance unlikely given the bank’s struggling profitability?

Weak results

The bank’s first-quarter results certainly don’t give investors much reason to be confident about a turnaround in its performance. Pre-tax profits fell by 3% to $6.03bn, below market expectations, following yet another provision for legacy misconduct issues and rising costs, which outstripped revenue growth.

An unexpected $2bn share buyback also did little to boost investor sentiment, as the bank announced that further buybacks in the remainder of the year were unlikely.

Rising rates

On the other hand, there are some analysts that remain bullish on the stock, as the rising US dollar interest rate environment provides a very significant tailwind for the lender’s financials.

With its large deposit base, HSBC is particularly well-placed to benefit, given that it has a competitive advantage on the cost of funding. What’s more, recent loan growth has been encouraging, with a 2% increase in its loan book in the first quarter.

Still, I reckon there must also be evidence of further improvement on the cost side, before a re-rating in its shares becomes likely. This is because, with a forward price-to-earnings ratio of 15.9, HSBC shares already trade at a premium to its UK domestic peers. As such, HSBC can’t just rely on rising rates to boost its profitability. Looks like we might have to wait a bit longer for the HSBC share price to hit 800p.

A better option?

Elsewhere, TBC Bank Group (LSE: TBCG) may be a better emerging market bank play. I believe key financial metrics for Georgia’s largest retail bank appear to be in much better shape, while valuations are undemanding, relative to its peers and to their expected growth rates.

Of course, as a domestically-focused bank, TBC is vulnerable to geopolitical risks and external shocks affecting the Georgian economy. And although robust economic expansion in the near term is expected to support the bank’s financials, it’s also important to realise Georgia’s economy is relatively small and highly dependent on foreign direct investment.

So far though, the macro environment remains supportive, and the bank’s return on equity has continued to stay above 20%. Looking ahead, City analysts expect the bank’s adjusted earnings will grow by 15% in the current financial year. And this to be followed by a further expansion of 12% in 2019.

TBC shares trade at just 8 times its expected earnings this year, and a mere 6.9 times its expected earnings in 2019, which compares favourably with its banking peers — particularly its closest rival, BGEO Group, which trades at 7.5 times its expected earnings in 2019.

The post Where is the HSBC share price headed next? appeared first on The Twelfth Magpie.

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Jack Tang has a position in Lloyds Banking Group. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, here are two banking stocks that seem to offer strong dividend growth potential over the long run. Coupled with the potential for capital growth, this could mean that their total returns are high in the long run.

Improving performance

Releasing full year results on Thursday was Georgia’s largest banking group, TBC Bank (LSE: TBCG). Its performance during the 2017 financial year was relatively positive, with underlying net profit increasing by 35.1%. This delivered an underlying return on equity of 21.4%, which is up on the previous year’s figure of 20.6%.

The bank also became more efficient in the year, with its cost:income ratio declining to 40.5% from 42.9% in the previous year. Meanwhile, the integration of Bank Republic has progressed as per previous expectations.

Looking ahead, TBC is expected to report further growth in earnings in the current year. Its bottom line is expected to increase by 11% this year, followed by growth of 21% in 2019. The Georgian economy continues to perform relatively well, and this could provide the business with a tailwind over the medium term. Despite this, it trades on a price-to-earnings growth (PEG) ratio of just 0.3, which suggests that it offers upside potential.

In addition, the company’s dividend yield is currently 3.7%. However, with dividends per share due to rise by 26% next year and still set to be covered 3.3 times by profit, the income investing outlook for the stock may prove to be the most enticing part of its overall investment appeal.

Improving performance

Also offering fast-paced dividend growth within the banking sector is Standard Chartered (LSE: STAN). The stock is in the midst of a successful comeback after a difficult period saw its profitability come under severe pressure. In fact, it reported a pre-tax loss in 2015, with regulatory issues causing investor sentiment towards the stock to decline severely.

Now, though, a brighter future seems to be ahead. The company is expected to post a rise in earnings of 38% this year, followed by additional growth of 22% next year. This high rate of growth means that it has a PEG ratio of just 0.6 at the present time. Given the growth potential across the emerging world and within many of the markets in which it operates, this appears to be a low price to pay for Standard Chartered.

In terms of income prospects, the bank is forecast to increase dividends per share from 8.5p in 2016 to 28.5p in 2019. This is a stunning rate of growth, and means that it has a forward dividend yield of 3.4%. And with dividends set to be covered 2.3 times by profit next year, further growth in shareholder payouts could be ahead.

The post 2 FTSE 350 dividend stocks I’d buy with £2,000 today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares in Standard Chartered. The Motley Fool UK has recommended Standard Chartered. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Impressive results

Georgia’s largest retail bank TBC Bank Group (LSE: TBCG) today reported results for the second quarter of 2017. Underlying net profit increased by 37% year-on-year, as robust economic conditions spurred strong growth in its loan book.

It’s encouraging to see the continued improvement in its underlying operating performance after shares in the bank have gained over 40% over the past 12 months. These impressive results are proof of the soundness of its growth strategy and showcase the strong operating leverage of the bank.

Return on equity moved higher by half a percentage point to 20.4%, as its loan portfolio grew by 30.8% on the previous year and 3.7% over the previous quarter to GEL7.39bn. Unfortunately, net interest margins (NIM) fell by 1.1 percentage points from the same period last year to 6.8%, reflecting competitive pressures in the banking sector which has driven loan yields lower. That said, conditions may be starting to stabilise, as NIM in the second quarter actually rose by 0.2 percentage points on a sequential quarterly basis, its first increase in just over a year.

Looking ahead, City analysts reckon the bank’s underlying earnings are set to rise 19% in the current year, followed by further growth of 11% next year. This means its shares trade at just 7.4 times its expected earnings this year, or only 6.4 times its expected earnings in 2018. And with forecasts of around 58.5p per share in dividends this year, TBC Bank seems to offer a potent mix of income and value, with the shares forecast to yield 3.7%.

Merger

Also showing exciting momentum are shares in wealth manager Rathbone Brothers (LSE: RAT). They’ve gained 40% since the start of the year but they may yet have further to go.

News broke over the weekend that Rathbone Brothers was in advanced talks with rival Smith & Williamson about a potential all-share merger. If completed, the tie-up would be the latest in a wave of consolidation in the wealth management sector and create a group with £56bn of assets under management.

Combining the two businesses could bring significant cost and revenue synergies for the combined group through increased scale and improved cross-selling opportunities. Rathbone’s revenue growth outlook seems set to slow to the mid-single-digits over the next few years, but the merger could improve its growth prospects as the deal would expand its range of services at a time when clients are seeking ‎increasingly sophisticated services from wealth management firms.

Meanwhile, shares in Rathbones trade on a forward price-to-earnings ratio of 21.6. This may look like a demanding valuation at first glance, but seems justified to me given its sector-beating growth prospects and potential synergy benefits.

The post 2 under-the-radar growth stocks with exciting momentum appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With most eyes on the FTSE 100 these days, it’s easy to overlook bargains among the smaller companies making up the FTSE 250.

Shares in infrastructure investor and manager John Laing Group (LSE: JLG) have gained 63% to 304p since the firm relisted on the FTSE in 2015, and dividends are already expected to yield 3.1% this year and next.

There’s a 20% fall in EPS forecast for this year, but that still leaves the shares on a forward P/E of only 7.4 for the year, dropping as low as 6.8 on the 9% EPS rise predicted for 2018. Unless there’s something seriously wrong with the company, that looks like a serious over-reaction to me and a very likely bargain buy.

Latest update

First-half results are due in August, and the company has just put out a pre-close update, showing investments made so far in 2017 of £111m spread between Australia and France. Total investments for the year are expected to amount to around £200m.

Realisations of £151m have been made too, via the sale of projects in Poland, Hungary and the UK, with the firm’s guidance for the year remaining stable at £200m.

Laing’s outlook appears impressive to me, with chief executive Olivier Brousse saying: “We plan to continue to scale-up our model based on our expertise as an originator, investor and manager of greenfield infrastructure projects.“

There’s a pension deficit of around £30m, but that’s falling, and I don’t see any serious debt problems — so I really can’t understand the reason for the low valuation of the shares. All I can put it down to is the Brexit hit on property and infrastructure firms in general, and John Laing doesn’t appear to be especially vulnerable.

Banking opportunity

I reckon we’re in a great period for contrarian banking investments right now, eschewing the big (and widely watched) names and focusing on smaller upstarts — like the UK’s ‘challenger’ banks, and overseas ones with impressive-looking potential.

I looked at Georgia-based BGEO Group recently, and I’m feeling attracted to compatriot TBC Bank Group (LSE:TBCG) too. TBC has only been listed on the London Stock Exchange since August 2016, yet already the shares have climbed by 50%, to 1,571p. And on forecasts, they’re still looking very cheap indeed.

We have an 18% EPS rise on the cards for this year, followed by a further 11% in 2018, and that gives us P/E valuations as low as 7.7 and 6.9 respectively — and very tasty-looking PEG multiples of just 0.4 and 0.6, where anything under 0.7 is typically seen as an attractive growth valuation.

Progressive dividends

And there are dividends too, with forecast yields of 3.4% and 4.3% for this year and next, so why are the shares so lowly-valued?

The obvious reason is Georgia, and it’s understandable if investors are shying away from emerging markets in general and the ex-Soviet region in particular — governments can be unstable, and we can’t guess at what political crises might emerge.

But I’d argue that banking in Georgia surely can’t be riskier than it was in the UK just before the crash, and I see TBC as an attractive candidate for those seeking growth and not afraid of a little bit of risk along the way — but I’d only include it in a diversified portfolio.

The post Two FTSE 250 growth stocks at bargain basement prices appeared first on The Twelfth Magpie.

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• 3 top passive income shares to consider with dividend yields above 5%
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• 3 quality FTSE 250 stocks to consider with dividend yields above 4.5%

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.