Which Is Your Best Bet On Asia: Standard Chartered PLC, Rolls-Royce Holding PLC Or Burberry Group plc?

G A Chester puts Asia growth-story bets Standard Chartered PLC (LON:STAN), Rolls-Royce Holding PLC (LON:RR) and Burberry Group plc (LON:BRBY) under the spotlight.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There may be speed bumps along the way, but the secular growth story of Asia remains very much intact. If you’re looking to add some Eastern spice to your portfolio, FTSE 100 companies Standard Chartered (LSE: STAN), Rolls-Royce (LSE: RR) and Burberry (LSE: BRBY) all have substantial exposure to Asian markets.

Standard Chartered

Standard Chartered has its roots in British colonial banking ventures of the Victorian era. The history is reflected in the geographical composition of Standard’s operating income today: 69% comes from Asia.

Standard’s geographical focus enabled it too look on smugly as western banks imploded during the 2008/9 financial crisis. But what goes around comes around, and today Standard is having its own crisis. Bad debts have been on the rise, various parts of the business have underperformed, and earnings have dived. As a result, a wholesale boardroom clearout has recently been announced, and talk of a capital raising and dividend cut is rife.

Standard trades on a modest current-year forecast P/E of 11.5, but I think we need visibility on how new management intends to overhaul and reposition the company. Besides, I don’t personally believe banking is the best play on rising wealth in Asia. My preference would be for companies with distinctive, differentiated, quality products

Rolls-Royce

Rolls-Royce’s engines are renowned the world over. Nevertheless, I was surprised to discover just how much revenue the company is generating from Asia. In 2014, 25% of revenue came from Asia (and 5% from the Middle East). I mention the Middle East because when it comes to Rolls-Royce’s £74bn forward order book, the company combines the two regions: Asia and the Middle East account for 44%. The biggest addition to the order book announced since the year end has come from Air China ($1bn).

Rolls-Royce had a mixed 2014, generally, and there are headwinds for 2015, including unfavourable exchange rates and a low oil price creating uncertainty among customers of the company’s Marine business. Nevertheless, the record order book gives confidence, and recent bright spots include stronger defence budgets in Asia and an increased demand for security at sea in the region.

Rolls-Royce trades on a current-year forecast P/E of 16, falling to 14.8 next year — which looks reasonable value for a high-quality business likely to see growing demand from increasingly wealthy customers in Asian markets.

Burberry

While Rolls-Royce is a business-to-business play, iconic British fashion house Burberry taps into rising consumer wealth.

Burberry’s revenue from Asia (on the same regional boundaries as those of Standard Chartered and Rolls-Royce) is a little difficult to discern from the geographical information within the company’s latest annual report. Burberry reports £870m of revenue from “Asia Pacific” in its retail and wholesale channels. (“Asia Pacific” includes Australia, but the seven Aussie stores perhaps net off against nine stores in India, which, oddly, isn’t included in the company’s Asia Pacific segment.) In Burberry’s licensing channel, we only know that 80% of £79m revenue comes from Japan. My sums suggest Asia accounts for 40% of Burberry’s total revenue.

Burberry’s shares aren’t cheap on the face of it: the forecast P/E for the company’s fiscal year ending today (31 March) is 23, falling to 21 for the upcoming year, and 19 for the year after. However, earnings are forecast to grow by double-digits annually, so the rating is not outrageous for a brand with such a strong franchise.

As I mentioned earlier, I think the investment outlook for Standard Chartered is too uncertain to call at the present time. However, Rolls-Royce’s exposure to government and business spending and Burberry’s exposure to consumer spending strike me as offering a nice combination of growth themes that could pay off for shareholders in the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »