The market has fallen out of love with Standard Chartered (LSE: STAN), once the sweetheart bank of the FTSE 100. The shares are currently trading at 1,207p — down over 20% from a year ago.
The Asia-focused bank released its half-year results this morning. Fairly grim numbers came as no surprise, having been prefigured in a trading update in June.
Operating income was down 5% to $9.3bn, as the group continued to be affected by generally difficult market conditions in emerging economies, and company-specific problems in Korea.
Pre-tax profit dived 20% to $3.3bn, with normalised earnings per share (EPS) coming in 21% lower at 96.5 cents.
The bank, which was fined $667m by US regulators in 2012 for breaking sanctions on Iran, also announced it was in hot water again — over its anti-money laundering systems and controls — and is likely to face another fine.
This will put further pressure on chief executive Peter Sands and chairman Sir John Pearce. Only a fortnight ago, Standard Chartered felt obliged to release a statement refuting rumours that the Board was readying to ditch the pair as a result of pressure from disgruntled investors.
In today’s results, Pearce stressed the team’s focus and determination “to return the bank to a growth trajectory which we believe will create significant value for our shareholders”. While Sands, acknowledging the disappointing first half, also made the more than fair point that “we delivered more profit for our shareholders during these six months than we did in the whole of 2006 at the peak of the pre-crisis banking boom. Not many banks can make that claim”.
In my view, management can handle getting through the cyclical downturn in sentiment towards emerging markets and the specific problems in Korea. And, in the longer term, the strategy of supporting the people and companies driving investment, trade and the creation of wealth across Asia, Africa and the Middle East should reap rewards.
So, with the market having fallen out of love with the bank and the shares languishing at their current lowly level, is Standard Chartered a good buy for contrarian investors?
Earnings forecasts — ahead of today’s results — of 112p a share for full-year 2014 put Standard Chartered on a P/E of 10.8. Even in the unlikely event EPS came in 25% below that consensus, the P/E would still be no higher than the FTSE 100 long-term average of 14.
On an assets basis, Standard Chartered reported tangible net asset value per share at 30 June of 975p (at current exchange rates), giving a price-to-book ratio of 1.25 times.
The company undoubtedly faces short-term difficulties, and future growth is unlikely to be quite at the phenomenal rate seen in the past, but for a business positioned to take advantage of the long-term growth story across emerging markets, the earnings and asset ratings at the current price look cheap to me.