It’s a little while since banks were screamingly cheap, but I reckon we still have a bargain or two in the sector.
Here are three reasons why I think Standard Charterted (LSE: STAN) (NASDAQOTH: SCBFF.US) is one of them:
1. Price slump
Most of the time when a share price falls, it’s for a good reason — and that’s actually true of Standard Chartered right now, with its share price down 20% over the past 12 months to 1,220p. But the thing is, markets are notorious for over-reacting to both hopes and fears, and we so often see prices pushed up too high on good news and trampled down too far on bad news.
I reckon the Standard Chartered price has suffered from overblown fears, which brings me to, er…
2. Overblown fears
There’s nothing fundamentally wrong with Standard Chartered. In fact, we have forecasts of 15% growth in earnings per share (EPS) for this year followed by another 9% next. With the share price down, we’re looking at forward P/E ratios of 11 and 10 — for a company offering predicted dividend yields of 4.2% and 4.5%.
It’s mostly about China, of course, with Standard Chartered doing most of its business in that part of the world. Chinese growth, running at 7.5% per year, is overheating a little and many are fearing a serious slowdown. But people have been worrying about that for years.
There have been a few negative reports of late about Standard Chartered too, criticizing its slowing growth and even suggesting management unrest. But they have not damaged the share price further, suggesting we’re at a time of maximum pessimism — and that’s the time to buy.
3. Capital strength
Standard Chartered is nowhere near overstretched the way Western banks were back in 2009, and achieving the Prudential Regulation Authority’s revised capital requirements was a walk in the park — because Standard Chartered was pretty much already there.
At the end of 2013, the bank was able to boast a Core Tier 1 capital ratio of 11.8%, up slightly from 11.7% a year previously — and even as long ago as 2010, the ratio already stood at 11.8%. Even Standard Chartered’s Common Equity Tier 1 ratio came in at 11.2%, beating the rest of the UK’s listed banks hands down.
Throw in a total capital ratio of 17.4% and a liquid asset ratio of 30.4%, and I really don’t think there are any worries.