Right now I’m analysing some of the most popular companies in the FTSE 100 to establish if they are attractive long-term buy and forget investments.
Today I’m looking at Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US).
What is the sustainable competitive advantage?
In the highly competitive and overcrowded banking market, bigger is usually better. Unfortunately, Standard Chartered ranks outside the top 25 biggest banks in the world.
However, what the bank lacks in size it makes up for in experience. Indeed, Standard Chartered is one of the most decorated banks in the world with around 100 awards for the recognition of exceptional service.
Furthermore, Standard Chartered’s existing position as a leading bank within Asia gives the company an edge over many of its peers in a market which they are yet to break into.
What’s more, Standard Chartered built its presence in Asia by buying up a number of smaller peers, each of which were well established within their own regions. This has allowed the bank to expand in a region that historically has difficult for Western companies to break into.
Moreover, Standard Chartered leads its peer group when it comes to profitability. For example, compared to one of the world’s largest banks, HSBC, Standard Chartered’s profit margin is nearly 10% higher. That said, since 2008 HSBC’s profit is up 135% while Standard Chartered’s profit has only expanded 52%.
Company’s long-term outlook?
Over the long term, Standard Chartered should benefit from the growing demand for financial services within Asia as the region develops further. That said, many of the banks peers have prioritised Asia as a region for strategic growth, so it is likely that competition on the continent will intensify over the next few years.
Still, Standard Chartered has the first-mover advantage so the banks existing position in the market should allow it to keep ahead of its peer.
However, like all banks Standard Chartered is exposed to factors outside of its control like the global economic environment, which can have a drastic effect on the company. In particular, Standard Chartered is highly exposed to China and the country’s worrying level of debt.
Nonetheless, Standard Chartered is well capitalized with a Tier 1 capital ratio of 13%.
Foolish summary
As I mentioned at the beginning of this piece, when it comes to banks, bigger is usually better and Standard Chartered’s relatively small size makes me hesitant to recommend it as a buy and forget share.
However, the company’s presence in Asia along with its reputation for excellence and higher than average profit margin leads me to conclude otherwise.
So overall, I rate Standard Chartered as a good share to buy and forget.
