Standard Chartered (LSE:STAN) shares have been gained this year, but were recently downgraded by Credit Suisse to “underperform“.
However, the British bank beat analysts expectations on Friday, announcing a 19% increase in profit.
So let’s take a closer look at the earnings report and see whether I’ve missed my chance to buy.
A stellar half
Standard Chartered first-half pre-tax profit rose 19%, beating market expectations. Statutory pre-tax profit for StanChart, which earns most of its revenue in Asia, reached $2.8bn in the first half, up from $2.35bn a year earlier. The figure also beat the average bank-compiled estimates of $2.48bn.
The emerging markets-focused lender benefitted from rising interest rates. The company also posted a positive post-Covid-19 outlook, pushing its shares higher. The bank also highlighted that its financial markets trading division reported record income.
The stock gained nearly 4% in early morning trading, before falling.
The Liverpool FC sponsor also announced an interim dividend of 4c per share, and a $500 million share buyback.
The London-based lender said that earnings were boosted by its focus on eastern markets, rather than the United States and Europe where economic forecasts have been repeatedly cut.
“Looking forward, whilst recession risks are rising in the West, we are seeing the early stages of a post-pandemic recovery in many of the markets in which we operate, underpinning our prospects for growth,” CEO Bill Winters said in the results statement.
However, the lender stated that Asia profits were dented by a $351m credit impairment. The impairment related mainly to to losses in China’s real estate sector and economic turmoil in Sri Lanka.
Standard Chartered said Hong Kong — its biggest market — showed resilience during the first half despite Covid-19 restrictions. Total income fell 5% in Hong Kong, compared with a 10% rise in Singapore and a 14% increase in India.
So, should I buy Standard Chartered shares?
Standard Chartered trades with a price-to-earnings (P/E) ratio (9) that is actually double that of Barclays. Its higher P/E ratio likely reflects the bank’s exposure to higher growth markets than Barclays and Lloyds, both of which are largely focused on the UK market. HSBC, which is more focused on Asia, also trades with a high P/E ratio. HSBC reports results on Monday.
Broadly I’m pretty optimistic on Standard Chartered’s focus on higher growth markets in Asia in the long run. However, I do have some concerns about the impact of inflation on developing nations later this year and beyond. What we’ve seen in Sri Lanka may just be a sign of things to come. The thing is, people in developed nations have more capacity to absorb higher fuel and food prices, but that doesn’t happen everywhere in the world.
So while the first half of the year may have been positive for Standard Chartered and its Asia focus, this might not be the case going forward. But, of course, I could be wrong here.
As a result, I wouldn’t buy Standard Chartered shares now. Although I’m bullish on this stock in the long run, I think there will be better entry points later this year.