The FTSE 100 can be something of a merry-go-round for top management, but the latest board appointment at emerging markets bank Standard Chartered (LSE: STAN) has raised some eyebrows.
Standard Chartered’s new finance director, Andy Halford, has spent the last 15 years at Vodafone Group (LSE: VOD) (NASDAQ: VOD.US), before which he worked at East Midlands Electricity.
Halford has been Vodafone’s Chief Financial Officer for the last nine years, and was generally well regarded by shareholders, but his lack of banking and Asia experience is a surprise — banking is a complex, specialist and heavily regulated sector.
Standard Chartered’s chief executive, Peter Sands, says that Halford’s “deep experience of managing a complex, international business” in “changing markets” was key to his appointment — but what can shareholders expect?
Shareholder payday?
From a shareholder perspective, Halford’s crowning achievement at Vodafone was last year’s $130bn sale of the firm’s 45% stake in Verizon Wireless, which triggered an $84bn return to shareholders.
However, Vodafone’s dividend track record under Halford’s guidance is no less impressive: Vodafone’s ordinary dividend rose by 170% between 2005 and 2014, the period when Halford was Vodafone’s finance director.
Can Mr Halford repeat this trick?
Could Standard Chartered’s dividend realistically rise by 170% over the next nine years? I’ve crunched the numbers, and although a direct repeat is unlikely, I believe shareholders could earn serious profits during Mr Halford’s tenure:
| Â | Current values | My assumptions | Projected 2022 values | 170% values |
|---|---|---|---|---|
| Earnings per share | 122p | Average annual growth of 6% | 206p (+70%) | 280p |
| Dividend per share | 51.8p | Dividend cover falls to 2.0 | 103p (+99%) | 140p |
| Share price | 1,305p | P/E rises to 15.4 | 3,172p (+143%) | 4,312p |
I should emphasise that these numbers are purely guesswork — there’s no way anyone can know whether Standard Chartered’s earnings will grow at an average of 6% per year over the next nine years. However, it’s certainly possible.
Similarly, I don’t know what level of dividend cover Andy Halford will target, but the bank’s five-year average of 2.4 seems slightly high to me — a target level of 2.0 seems about right.
The biggest gains for shareholders may come from Standard Chartered’s share price, which my figures suggest could rise by 143% over the next nine years, thanks to rising earnings and its re-rating potential. Standard Chartered shares currently trade on a forecast P/E of just 10.7, but they hit a P/E high of 15.4 in 2013, and there’s no reason this couldn’t happen again.
In my opinion, Standard Chartered currently looks very cheap. Market sentiment towards the bank is depressed, yet the underlying business is healthy. I reckon that Andy Halford has timed his arrival very well and, as a shareholder, I’m looking forward to the ride.