Standard Chartered (LSE: STAN) escaped the credit crunch in the West by having most of its business in the East — only 10% of its 2013 profits came from Europe and the Americas, with the bulk of the rest from Hong Kong and the rest of the Asia Pacific region.
As a result, we didn’t see the same kind of share price crash that the UK’s high-street banks suffered — but Standard Chartered shares have turned South over the past 12 months, dropping 13% to 1,346p while the FTSE 100 managed a 2% rise.
That’s a result of overheating in China, generating fears of a possible crunch to come should the country’s property and credit markets not cool off a bit. But many feel the worries are overdone, and the Chinese economy does seem to be behaving itself reasonably well.
What crunch?
The City’s analysts aren’t current figuring any Chinese slump into their forecasts for the next few years. So assuming there’s no Eastern meltdown to come, what might Standard Chartered shares be worth in five years time?
Extrapolating the current forecasts trend just a little further, we could be seeing earnings per share (EPS) in 2018 of around 175p. If Standard Chartered’s current P/E valuation of a lowly 10.5 should stay at that level, we’d see a share price after December 2018’s results of about 1,838p — a fairly attractive rise of 37%.
Now, however the P/E goes, we can be pretty sure it won’t stay at that 10.5 level. Should Chinese fears prove unfounded, I think we could safely assume a longer-term P/E of around the FTSE’s average of 14. And that would imply a much nicer share price rise of 82% to 2,450p.
And the cash
What about all those dividends? With the bank’s annual handout providing yields of around 4%, a total cash pile of 300p from now until the 2018 payment wouldn’t seem at all unreasonable to me.
That would turn each 1,346p invested in Standard Chartered shares today into 2,750p today — and who wouldn’t want to double their money in five years?
Of course, should China suffer a property and credit crunch like the West, all bets would be off!