The art of contrarianism is about finding that hidden gem, that treasured artwork in a corner of your local gallery, or that piece of designer clothing in the department store bargain bucket. You know it’s a steal because no one else has spotted it. Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) is a prime example of this.
Standard Chartered is a bank based in the UK with businesses ranged across the globe, from Europe and the Americas to Africa and Asia. It has a market capitalisation of £29 billion, with 1,700 branches globally. The bulk of its profits are from its Asian and African businesses.
A decade of growth
This is a company that has enjoyed a decade of steady, unfettered growth until round about the eurozone crisis of 2011, when the company has, uncharacteristically, stuttered. Until then the company was seen as one of the few banks that had emerged relatively unscathed and untainted by the credit crunch.
In 2012 the bank was accused of money laundering in Iran, concealing $250 billion of transactions. The company was fined $340 million. This was followed in 2013 by difficulties in Korea, leading to a $1 billion write-down of its business there.
I think the reality for Standard Chartered is a company that is readjusting as growth slows and margins are compressed in an increasingly competitive financial world.
The company has stumbled, and I expect a period of consolidation now. The company’s run of double-digit profit growth is at an end, but it is now likely to maintain income growth in the high single digits. I expect earnings per share to resume growth this year and the next.
The company is now cheap
So let’s look at the numbers. The 2014 P/E is predicted to be 8.7, falling to 8 in 2015,with a dividend yield of 4.6% rising to 5%. Quite simply, this means the company is now a bargain.
Over the past year Standard Chartered’s share price has tumbled, and the news flow has been overwhelmingly negative. But the contrarian in me sees this as a buying opportunity; over the next few months I expect the company’s profitability to turn upwards. This should lead to the share price turning upwards as well.
The long-term trend of increasing profitability as emerging market financial services boom is set to continue. That’s why I think now might just be the time to buy Standard Chartered.
