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Seeds of recovery for Standard Chartered
Although the lack of a dividend initially disappointed the market did first half results (3 Aug) from emerging markets focused Standard Chartered (STAN) offer some signs of a more tangible recovery?
Pre-tax profit increased 93% year-on-year to $1.9bn but the shares were down 6.6% on the day of the results. They have since regained most of those losses and are up 26% over the last 12 months as a whole at 804.6p.
The bull case
Emerging markets were in the doldrums for some time, the whipping boy of improving developed market economies and Standard Chartered’s revenue declined by $5bn or 26% between 2012 and 2016.
However, according to statistics from the Institute of International Finance, the regions are staging a major comeback, with non-domestic investment into the markets expected to reach almost $1trn by the end of this year.
If emerging markets continue to power on, Standard Chartered could do well as it runs banks in up and coming countries like Indonesia.
The strategic focus for this major bank leads Raul Sinha, analyst at JP Morgan Cazenove, to say ‘we consider StanChart to be a growth stock rather than an income stock given its unique and entirely emerging markets focused footprint’.
JP Morgan’s Sinha has reduced his earnings per share forecast for 2017 by 1% to 19p and for 2018 by 3% to 12.2p.
He estimates 5% revenue growth for the 2018 financial year based on a 6% quarter-on-quarter (q/q) growth in cash management, 3% q/q growth in wealth and 4% q/q in retail.
Chief executive Bill Winters is full of fighting talk. ‘We are stronger, leaner and becoming more efficient. We go into the second half of the year confident in our resilience and in our ability to generate better value for our clients and shareholders,’ he says.
The bear case
Investec’s Ian Gordon is not as optimistic on Standard’s chances, saying ‘we continue to believe that the revenue run-rate is far too low to generate the scale and pace of recovery that consensus appears to expect’. He recommends investors to sell the stock with a target price of 690p.
Standard trades on a forecast price to net asset value of 0.9 times for 2018.