The FTSE 100 banks have generally been recovering well from the recession, but there’s a couple of notable exceptions — Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) is one of them. Its shares are more than 20% down over the past 12 months, and at 1,308p they’re trading close to their 52-week low.
Before I examine the reasons for the fall, here’s a look at Standard Chartered’s past five years of headline fundamentals, with forecasts for three more years:
| Dec | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2008 | 168.5c | +1% | 8.3 | 65.5c | — | 4.7% | 2.6x |
| 2009 | 180.0c | +7% | 13.9 | 66.0c | +0.8% | 2.6% | 2.7x |
| 2010 | 197.0c | +9% | 14.4 | 70.0c | +6.1% | 2.5% | 2.8x |
| 2011 | 198.0c | 0% | 11.7 | 76.0c | +8.6% | 3.3% | 2.6x |
| 2012 | 225.2c | +14% | 11.5 | 84.0c | +11% | 3.2% | 2.7x |
| 2013* | 207.3p | -9% | 10.7 | 87.8c | +4.5% | 4.0% | 2.4x |
| 2014* | 229.1p | +11% | 9.7 | 95.2c | +8.4% | 4.3% | 2.4x |
| 2015* | 250.1p | +10% | 8.9 | 103c | +8.2% | 4.7% | 2.4x |
* forecast
That all looks pretty good to me, with rising earnings and dividends, and with cover remaining healthy. So where’s the problem?
What crisis?
Well, it’s the one in China. At least, it’s the potential crisis that many in the investment world fear is likely to happen.
Chinese growth is not as strong as it has been in the past, but with the IMF having upped its forecast to 7.5% per year only last week, China is still easily leading the world in growth terms. So what’s the problem?
Well, China is facing the two-headed problem of booming credit and booming property prices — and we know only too painfully what happened in Europe when the same kind of boom came to a shuddering halt.
Profits in the East
Standard Chartered avoided the crisis in the West largely because its business is mainly in the East, and it generates around a quarter of its annual profits in Hong Kong. Singapore provides a fair whack, but the island state is pretty conservatively run in economic terms. Other than that, close to a further 20% of business comes from elsewhere in the Asia Pacific region.
Though it’s specifically China that is causing some investment knees to knock, any credit crunch in the People’s Republic would be felt throughout the region. So why am I upbeat about Standard Chartered?
It’s largely because I think the panic is overdone and the shares are oversold. Standard Chartered is not as exposed to China as HSBC Holdings, which gets nearly a third of its profits from Hong Kong, but the two banks are pretty similarly valued. Standard’s forward P/E based on December 2013 expectations stands at around 10.5, dropping to under 9 by 2015 if forecasts prove accurate — for HSBC it’s 11.3 now, falling to 9.5 for 2015.
And when dividends are considered, the two seem more closely valued — Standard is predicted to offer yields of 4.1% rising to 4.8%, with HSBC on 4.8% to 5.9%.
Forecasts?
What’s more, we’ve had a number of brokers updating their positions on Standard Chartered within the past couple of weeks, and they’re still pretty upbeat about earnings and dividends. Now, I know analysts are often the last people to spot catastrophes in the making and didn’t do too well with out own banking crisis.
But there just seems to be too much pessimism built into the Standard Chartered price right now, and I’m hoping to see an upwards correction this year.
Verdict: Set to bounce back in 2014!