During 2013, I’ve looked at most shares in the FTSE 100 and graded them against these five quality and value indicators:
- Dividend cover
- Borrowings
- Growth
- Price to earnings
- Outlook
Some companies scored highly against the “business quality” indicators of level of borrowings, earnings growth record, and outlook. Others scored highly against the “value” indicators of dividend cover and price-to-earnings ratio (P/E).
Quality and value in harmony
However, the most promising investment opportunities scored well on both business-quality and value indicators.
In this mini-series, I’m revisiting some of the highest-scoring shares to look at events since the original article and to assess the quality of the investment opportunity now. Some of these high-scoring firms could be investment winners for 2014 and beyond so, today, I’m revisiting international banking company Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US), which scored 18 out of 25 in August.
Margins down, volumes up
Low, single-digit growth in operating profits is the order of the day according to Standard Chartered’s recent three-quarter results statement. Strong volumes have kept growth positive, offsetting the effects of lower margins compared to 2012. The trading challenges facing the firm include continued market uncertainty, currency depreciation in some emerging-market economies, and increasing regulatory and compliance costs.
The UK-headquartered bank earns around 90% of its profits from Asia, Africa and the Middle East, making Standard Chartered a bet on emerging markets. But it’s not new to the game; the company’s history stretches back 150 years in such areas. This offers investors the excitement of exposure to up-and-coming markets whilst invested in a seemingly conservatively managed business with a long track record of success.
Standard Chartered’s total-return potential now
The share price has eased about 9% to 1459p since August.
Meanwhile, forward earnings are expected to cover the forward dividend around 2.4 times, scoring 4/5, as before; exterior borrowings seem to be running around six times operating profit, scoring an unchanged 1/5; earnings look on course to come in around flat for the year with growing revenue, still scoring 4/5; a forward P/E rating of 10 sits well against earnings-growth and yield predictions, encouraging me to maintain the score at 4/5; and recent satisfactory trading supports a cautiously optimistic outlook, so I’m dropping the outlook-score one point to 4/5.
Overall, I score Standard Chartered 17/25 against my business-quality and value indicators, today.
Foolish Summary
In August, Standard Chartered shares tempted with their forward dividend yield of around 4%. Today, that well-covered forward dividend yields over 4.1% thanks to negative share-price movement.
With city forecasters predicting a 10% advance in earnings during 2014, the growth story seems far from over. Overall, I still think Standard Chartered looks attractive.
