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HSBC: Acquisition of Grupo Banistmo S.A.
HSBC announced that it is to acquire Grupo Banistmo S.A., a banking group based mainly in Panama, at a cost of $1.77bn.
Grupo Banistmo has assets of $6,973m, shareholders' funds of $695m and made post tax profits of $115m last year. The acquisition will give HSBC control over Primer Banco del Istmo, Panama’s largest bank and Compania Nacional de Seguros, Panama’s largest insurer. Banco del Istmo offers personal, commercial and investment banking services in Panama through 42 branches. HSBC says the acquisition will complement its existing operations in Panama where its subsidiary HSBC Bank (Panama) S.A. operates 19 branches.
The Banistmo group has a presence in a number of other Central American countries including Costa Rica, Honduras, Colombia, El Salvador and Nicaragua where it runs (through two entities) a total of 178 branches.
HSBC has had a very good track record with acquisitions and this one looks to strengthen its presence in one of its fastest growing markets. HSBC, famously stingy, appears to have acquired the company at a very good price-simply looking at the profits the Banistmo group made last year as a percentage of the price paid gives HSBC a respectable yield of 6.5% - before any kind of restructuring.
Looked at in terms of HSBC’s total operations, the acquisition is small. (last year the bank reported pre-tax profit of $20,966m) However, it is significant in that it strengthens the bank’s position in a fast growing and increasingly important market. The bank has, in general shied away from large, high profile and expensive takeovers that are difficult and expensive to digest, preferring instead to focus on medium sized targets that are relatively undervalued.
Overall prospects for the bank have not changed much since we last looked at it. Trading at 952.5p, the share is on a prospective PE (2007 earnings) of 13.4x, at the upper end of the sector range, a position that is justified by its sound track record. The yield is a reasonable 4.3%.