How Much Lower Can Standard Chartered PLC Go?

Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish the outlook for their share price.

Today I’m looking at Standard Chartered PLC (LSE: STAN) (NASDAQOTH: SCBFF.US) to ascertain if its share price will continue to fall. 

Market sentiment

Standard Chartered has recently hit a wall. After a decade of strong growth, which saw the bank’s earnings grow at a compounded annual rate of above 10%, the brakes have been applied to Standard’s expansion plans.  

Indeed, as economic headwinds in Asia are starting to grow, Standard’s management has warned that the bank is heading for a period of low growth. A long-standing target to increase revenue by at least 10% a year was cut to between 7% and 9% for the next couple of years.

Unfortunately, when Standard revealed its first quarter trading update to the market, the extent of the economic resistance in Asia became clear. During the first quarter, Standard’s operating profit actually fell and loan impairments rose to $1.61bn, from $1.2bn reported during 2012.

For the most part Standard’s troubles stem from South Korea, which remains a tough region for the group. For the full year 2013, Korea swung to a loss of $162m, compared to the profit of $164m reported for 2012. What’s more, during the first quarter of this year, Standard’s income from its Korean arm fell by another $110m, as the group continued to restructure operations within the region.

As Standard continues to underperform the market is turning against the bank.

City expectations

With Standard lowering its own expectations for growth, the City’s expectations for the company have also fallen. For example, this time last year City forecasts were calling for the bank to report earnings of 150p per share for full-year 2014. Now, the City expects Standard to report earnings of only 125p per share for 2014.

Still, despite lower City forecasts, Standard looks relatively cheap at current levels. In particular, Standard is currently trading at a forward P/E of 10.3, compared to the banking sector average of around 25.

However, with Standard’s outlook consistently being revised downwards, it’s not unreasonable to suggest that the bank could fail to meet City expectations. 

Possible headwinds

With Standard’s own management guiding for a tough 2014, it does look as if the bank’s shares are going to come under increasing pressure.

Further, unless the situation within Korea and Asia improves drastically for Standard over the next few months, the bank is going to struggle to drive growth within these two key regions.  

Foolish summary

Overall, it seems as if Standard is facing some strong headwinds, although the company’s bargain-basement valuation is hard to ignore.

So, I feel that due to the bank’s low valuation, Standard’s shares should not fall too much lower.