The banking sector is generally moving back to earnings growth, but Standard Chartered (LSE: STAN) (NASDAQOTH:SCBFF) is a little different to most.
Unlike those hit by the Western banking crisis, Standard Chartered does most of its business in Asia and so escaped largely unscathed. But also unlike some of others, Standard Chartered is seeing a bit of a share price fall — it’s down nearly 30% over the past 12 months, to 1,246p.
How can that be when there are nice growth forecasts on offer? Well, firstly, let’s see how things look:
| Dec | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2008 | 169¢ | +1% | 8.4 | 65.5¢ | — | 4.6% | 2.6x |
| 2009 | 180¢ | +7% | 14.1 | 66.0¢ | +0.8% | 2.6% | 2.7x |
| 2010 | 197¢ | +9% | 14.7 | 70.0¢ | +6.1% | 2.4% | 2.8x |
| 2011 | 198¢ | 0% | 11.9 | 76.0¢ | +8.6% | 3.2% | 2.6x |
| 2012 | 225¢ | +14% | 11.7 | 84.0¢ | +10.5% | 3.2% | 2.7x |
| 2013* | 204¢ | -10% | 10.5 | 87.5¢ | +4.2% | 4.0% | 2.3x |
| 2014* | 226¢ | +11% | 9.4 | 94.5¢ | +8.0% | 4.3% | 2.4x |
| 2015* | 248¢ | +9% | 8.6 | 103¢ | +9.0% | 4.7% | 2.4x |
* forecast
More growth in 2014
There’s a relatively small fall expected for the year just ended, but double-digit growth for this year followed by 9% for 2015 looks attractive, especially with a forward P/E valuation of 9.4, falling to 8.6 — those are levels unseen since the depths of the recession.
But the reason behind that past growth is also the cause of the underlying caution and low-looking share price valuation — China.
Slowing Chinese growth has had a hand in the Western recession, as falling demand for raw materials has led to slumps in commodities prices — and that in turn has hit the mining sector which, as it turns out, had been in a bit of an over-productive phase.
But to focus on that is to miss the bigger picture. Despite the ‘slowdown’, China’s GDP is still growing faster than any other sizeable economy in the World.
An enviable record
The People’s Republic enjoyed year-on-year GDP growth of 9.2% in 2009, rising to 10.4% in 2012. Then came the so-called slowdown, with a fall to 9.3% in 2011 and 7.8% in 2012. (Those are World Bank figures based on constant local currency, and you’ll find a whole slew of different figures out there based on different calculations — but the point is it’s still growth that would be the envy of many a Western economy.)
And early indications suggest growth stabilised in 2013, although the Chinese government is trying to get it down to a more manageable 7.5%.
So, for a bank that earned the bulk of its 2012 profit in the Far East, with around a quarter coming from Hong Kong alone, it’s not hard to see how it has managed to keep that earnings growth going — or why we have such nice forecasts.
Not without risk
But there could be a sting the dragon’s tail, depending on what happens to China’s bubbling credit levels and heating property market. If they should crash badly, those Standard Chartered growth forecasts might be slashed. It depends how well China can manage that growth.
So, nice growth prospects, if perhaps a bit risky.