A dog with fleas
Standard Chartered‘s (LSE: STAN) (NASDAQOTH: SCBFF.US) performance so far this year has been dismal to say the least. Year-to-date, the company’s share price has declined around 7%, under performing all of the company’s peers and lagging the FTSE 100 by approximately 20%.
But why has Standard Chartered lagged the rest of its peers so much? Well it comes down to growth, or in Standard Chartered’s case, the lack of it.
You see, during the past ten years Standard Chartered grew rapidly as its rode the economic boom occurring within Asia. However, earlier this year the back announced that after several years of double-digit growth, a slowing Asian economy was going to hold back Standard Chartered’s growth during the next two years.
In addition, Standard Chartered was forced to write down the value of its business within South Korea to the tune of $1 billion. That said, this comes as no surprise as the bank has had a hard time integrating its South Korean assets after acquiring the country’s, First Bank for $3.3 billion during 2005.
Charting a course
However, Standard Chartered is now laying out a roadmap for growth. For example, management has stated that it in intends to take a tougher approach to how it allocates capital and will shed small operations in some countries. Indeed, last year the company closed its retail bank in Japan and is currently selling retail banking operations within Lebanon.
What’s more, Standard Chartered has operations within Africa, a region in which the banks income is still growing at a double-digit clip.
Furthermore, Standard Chartered is now targeting income growth of 10% per annum in the medium to long-term, while cutting costs to improve efficiency.
A contrarian opportunity?
Nonetheless, although Standard Chartered has laid out its roadmap for recovery, the company has failed to reignite investors’ attention. In particular, the bank is now trading at a forward P/E of 11.8, below its ten-year average of 13. Actually, Standard Chartered is now trades at a lower valuation than the banking sector, which currently trades at a P/E of 16.4.
Still, the banks’ earnings per share are expected to contract approximately 5% this year. However, City analysts currently predict that the bank will return to growth during 2014. Indeed, City analysts currently forecast earnings per share growth of 10% during 2014 followed by similar growth during 2015.
Foolish summary
So overall, while Standard Chartered has failed to impress investors during the past year or so, the bank is well placed to stage a recovery. Additionally, the company is now trading at one of the lowest valuations placed on it during the past ten years, an opportunity investors should not pass up.
