Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) shares have fallen 21% since the start of 2014 to 1,089p, and the recent trend has been sharply downwards. But why?
It’s tempting to pin it on the “China Effect” — with Standard Chartered doing nearly 30% of its business in Hong Kong and a fair bit of the rest in the Asian region, fears of Chinese overheating and a resulting slowdown have certainly taken their toll.
It’s not just China
However, consider HSBC Holdings, where an even greater proportion of the company’s business comes from Hong Kong and the Chinese sphere. So we’d expect it to be under great pressure, too, right?
Wrong. This year to date, HSBC’s shares are down only 7%, around the same as the FTSE 100‘s drop. And HSBC’s share price has recovered significantly since its 2014 nadir in March while Standard Chartered shares continue to test new lows.
Weak first half
Standard Chartered has had problems of its own as well, as a profit warning earlier this year made only too clear after a few quarters of less-than-sparkling figures. And a 20% fall in unadjusted pre-tax profit for the six months to 30 June coupled with a 21% fall in normalised earnings per share (EPS) didn’t help.
In fact, chief executive Peter Sands opened his statement saying “Our performance in the first half of 2014 is clearly disappointing. It is not what we strive for and not what our investors expect“.
He also pointed to “…challenges in Korea as we reshape our business there” — and that’s one market that has been doing especially badly.
To top it all off, it’s no real suprise that there’s been growing discontent with the company’s management, with some bringing Mr Sands’s suitability for the top job into question.
But what does Standard Chartered look like to us as investors now?
An oversold bargain?
Well, although forecasts for 2014 have been cut back significantly over the course of the past 12 months, they’ve been stabilizing in recent months — and there’s even been a slight uptick in the past few weeks. And though the recommendations are split, there’s a clear Buy majority out there right now.
The current consensus puts the shares on a forward P/E of under 10, dropping to 9 for 2015 when there’s a 10% EPS recovery expected. And with twice-covered dividends of around 5% being predicted, there’s a strong case to be made for buying Standard Chartered shares now.
