Trading at a discount
Standard Chartered (LSE: STAN) is perhaps the cheapest bank stock on the market. Shares in the emerging market focussed bank currently trade at a price to book (P/B) ratio of 0.5. A bank with a P/B ratio of less than one indicates its market value is less than its actual worth, as stated on its balance sheet. UK banks have often traded at a discount to book value since the financial crisis of 2007/8, but rarely at such a steep discount.
Unfortunately, Standard Chartered is trading at such a discount for some very good reasons. Loan impairments almost doubled in 2015 to $4bn and the bank reported a pre-tax loss of $1.5bn for the year. As the economic slowdown in emerging markets takes hold, investors expect the bank to make more loan losses, with profitability destined to remain subdued in the near future.
The bank’s near-term performance could be cause for optimism though. Analysts had been expecting another a steep rise in loan losses in the first quarter of 2016, but to their surprise, loan losses instead fell by 1%. Standard Chartered also made strong progress in improving its balance sheet; its common equity Tier 1 capital ratio, a measure of financial strength, rose 0.5 percentage points to 13.1% in the first three months of this year.
Earnings will take some time to recover, and City analysts only expect the bank to report adjusted EPS of 19.3p this year. This means its shares are currently trading at a pricey forward P/E of 27.2.
Tempting dividend
Having slumped 16% since the start of the year, shares in Aviva (LSE: AV) currently trade at 0.9 times its book value. Aviva’s track record on growth may have been unimpressive, but the insurer has shown significant improvement in profitability. The insurer’s operating profits in 2015 increased 20% to £2.7bn, with dividend up 15% to 20.8p per share for the year.
Looking forward, City analysts expect adjusted earnings to grow 108% and 10% in 2016 and 2017, respectively. This would give its shares a forward P/E of 8.3 on its expected 2016 earnings, which would fall to just 7.6 by 2017. Its dividend yield, which currently stands at 4.9%, is forecast to rise to 5.6% and 6.3% by 2016 and 2017, respectively.
City brokers are positive on the stock too. Out of 22 recommendations, 13 are strong buys, one is a buy, four are holds, and four are strong sells.
Massively undervalued
Property regeneration company U and I Group (LSE: UAI) also trades near its 52 week lows. With shares trading at a 36% discount to its net asset value (NAV) of 291p per share, the real estate investment trust (REIT) is also massively undervalued.
Despite this, the specialist property company is forecast to see some robust growth with the completion of major regeneration projects timetabled for the next two years. Development and trading gains over the next two years is expected to total £114m.
This is in line with the company’s medium-term target of delivering annual total returns in excess of £50m, which roughly equates to a 12% post-tax return. That’s a much greater return than most other real estate investments.
Shares in the REIT carry a temping 7.4% dividend yield, with earnings cover at 1.23 times.