HSBC's Argentina exit doesn't impact valuation, Shore Capital says 'buy'

Shore Capital has said that HSBC's disposal of its Argentinian business should not have a material impact on its investment case despite it generating a $1bn hit to the business.

HSBC Holdings on Tuesday said it was selling its Argentina business to Grupo Financiero Galicia for $550m and take a $1bn pre-tax loss in the process as it continued to pivot its operations towards Asia.

The deal would result in no material impact on tangible net asset value per share or HSBC's CET1 capital ratio, though it would see $4.9bn of accumulated currency translation losses through the income statement upon closing.

"Argentina has been a problematic market for HSBC in recent years given hyperinflation in the region and a sharp currency devaluation, which has resulted in significant earnings volatility for the business," Shore Capital said.

"Exiting Argentina also represents a further step in management’s strategy to simplify the group and concentrate resources on areas of the business where greater shareholder value can be created."

The broker acknowledged a great deal of "accounting noise" associated with the disposal, but said: "We do not expect it to have a material impact on the valuation of the stock or the investment case. With that in mind, Shore Capital retains a positive stance with a fair value of 860p (33% upside)."

The stock was up 0.1% at. 645.4p by 1610 BST.