For most shares in the FTSE 100, 2013 was a good year and investors have likely enjoyed capital gains and rising dividend income.
That makes me nervous about investing for 2014 and beyond, and I’m going to work hard to adhere to the first tenet of money management: preserve capital.
To help me avoid losses whilst pursuing gains, I’m examining companies from three important angles:
- Prospects;
- Risks;
- Valuation.
Today, I’m looking at international banking company Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US).
Track record
With the shares at 1321p, Standard Chartered’s market cap. is £32,090 million.
This table summarises the firm’s recent financial record:
| Year to December | 2008 | 2009 | 2010 | 2011 | 2012 |
|---|---|---|---|---|---|
| Revenue ($m) | 13,968 | 15,184 | 16,062 | 17,637 | 19,071 |
| Net cash from operations ($m) | 23,730 | (4,754) | (16,635) | 18,370 | 17,880 |
| Adjusted earnings per share (cents) | 201.3 | 159.3 | 193 | 198.2 | 197.7 |
| Dividend per share (cents) | 61.62 | 63.61 | 69.15 | 76 | 84 |
1) Prospects
In January, Standard Chartered announced a restructure to simplify the internal organisation of its business so that the firm can apply sharper focus to future growth opportunities. Simplification is usually a good thing, and I think such a move bodes well for the firm’s prospects in 2014 and beyond.
The firm saw lower margins during 2013 but thinks strong volumes will have gone some way to offset the effects of that. At three-quarter time in the autumn, the firm reported low, single-digit growth in operating profits. We’ll find out how the year as a whole worked out with the full-year results due around 5 March.
With around 90% of profits coming from Asia, Africa and the Middle East, Standard Chartered is something of a play on emerging markets. However, the company’s tradition is long in such areas, reaching back 150 years, which might provide some comfort for risk-averse investors that nevertheless hanker for the tempting-looking growth offered by such up-and-coming markets.
Standard Chartered seems to have fared well during the banking industry’s spell on the naughty step after the recent financial crisis. Perhaps that’s because of the firm’s culture and obsession with getting the basics right. Based on track record, I’m optimistic about the company’s prospects going forward.
2) Risks
According to the directors, the trading challenges facing the firm include continued market uncertainty, currency depreciation in some emerging-market economies, and increasing regulatory and compliance costs.
There’s always a risk that any one, or combination, of such issues could rear up enough to derail the return for Standard Chartered investors.
3) Valuation
The shares are trading at a 14% discount to the last-reported tangible net asset value.
Forward earnings cover the dividend around two-and-a-half times for 2015 and the forward dividend yield is about 4.7%.
City analysts following the firm expect earnings to grow at around 10% for 2014 and again in 2015. Meanwhile the forward P/E ratio is running at around eight or nine, which compares well to such dividend yield and growth expectations.
