After a number of years of rising earnings, Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) is forecast to report a 10% fall next Wednesday, 5 March — there’s 122p EPS currently predicted by the City, with pre-tax profits of £4.1bn.
At the first-half stage, we heard of a 4% rise in operating income to $9.75bn, but after a $1bn impairment for the writedown of goodwill in Korea, pre-tax profit fell 16% to $3.33bn.
Bad time in Korea
Telling us that Korea was the bank’s toughest market, chief executive Peter Sands said “Banking sector profits were down 48 per cent in the first half. For our part, in the first half we have faced a 5 per cent fall in income and a sharp rise in loan impairment, driven by the government-sponsored personal debt rehabilitation scheme“.
But at least the interim dividend was lifted, by 6% to 28.8 cents per share. That bodes well for the predicted 4% rise in the full-year dividend, which would provide a yield of 4.1% on the current share price of 1,275p.
At third-quarter time, Mr Sands sounded upbeat, telling us of a “resilient performance despite an uncertain macro environment, with continued strong levels of client activity and good volumes across many of our markets“.
Strength and weakness in China
He pointed to the bank’s diversity as one of its key strengths, and that was one of the things that helped Standard Chartered largely avoid the crisis that afflicted the rest of the sector — that and its focus on Asian markets rather than the troubled West.
That Asian focus is now a cause for concern, however, as a burgeoning credit boom in China and an overheating property market are raising fears that the country could face a similar crunch. And that’s hit the Standard Chartered share price — it’s down more than 25% over the past 12 months.
That low price does depress the company’s P/E valuation — starting at under 11 based on 2103 expectations, it quickly drops to less than 9 by the time we get to forecasts for 2015.
No surprises
Next week looks likely to bring us results largely in line with expectations, after a pre-close update in December told us to expect full-year income broadly in line with 2012, with net interest margins slightly down and currency movements set to knock around 1% off income and profit growth.
But capitalisation sounds fine, with a Core Tier 1 ratio unchanged since half-time. Until Wednesday, then.