Patience is one of the key attributes of a successful investor. The likes of US master Warren Buffett have been known to wait years for the right company at the right price.
Now, while buying stocks at a fair price will tend to pay off over the long term, we all love to bag a real bargain.
Today, I’m going to tell you why I believe Standard Chartered (LSE: STAN) is currently in the bargain basement.
Asset valuation
Price-to-tangible net asset value (P/TNAV) is my number one financial metric for valuing banks. If you can buy £1 of assets for less than a pound, you should be on to a winner — providing the value of the assets on the balance sheet fairly reflects their true worth.
Standard Chartered’s TNAV per share at the last balance sheet date (30 June) was $16.47 — equal to £10.30 at the current $/£ exchange rate. The company’s shares are trading at £9.40, so the P/TNAV is 0.91. Put another way, the market is asking you to pay 91p for every £1 of Standard Chartered’s assets.
To put this into context, Standard Chartered is better value — on a P/TNAV basis — than Lloyds (1.49), HSBC (1.06) and Royal Bank of Scotland (1.00). Only Barclays (0.84) is cheaper.
At what price a bargain?
Standard Chartered, with its overwhelming focus on Asia and emerging markets, steamed through the financial crisis of 2008/9 largely unscathed. However, the company’s growth has lately hit the buffers.
Profits fell in 2013, and are set to fall again this year. Bad loan impairments have been rising, there will be no quick fix for the company’s struggling — loss-making — business in Korea, and across the group management is exiting non-core businesses, de-risking certain portfolios and reallocating capital.
Certainly, given the near-term pressures on TNAV, I’d be looking for a discount at this point in time. However, let’s not forget that it wasn’t so long ago that Standard Chartered traded at multiple of TNAV, and that the company remains well position to benefit from the long-term growth story in Asia, Africa and the Middle East.
In a previous article, I said I’d have Barclays — currently the cheapest bank on asset valuation — in the bargain basement on a P/TNAV of up to 0.9. I’d find it hard, in the light of Standard Chartered’s strong positioning and long-term prospects in high-growth markets, to demand a lower P/TNAV than for Barclays.
As such, with Standard Chartered currently trading on a P/TNAV of 0.91, I reckon the shares are just about in the bargain basement.
