During the course of 2014, shares in Standard Chartered (LSE: STAN) have massively underperformed the FTSE 100. Indeed, they are down 31% year-to-date, which is a dismal performance and considerably behind the FTSE 100’s fall of 2%. However, 2015 could be a completely different story. Here’s why.
Profit Warnings
A key reason for Standard Chartered’s dire share price performance during 2014 is a couple of profit warnings. The bank is now expecting its bottom line for the full year to fall by 1%, which is a disappointing result when you consider that many of its UK-focused peers are due to deliver strong profit growth this year. Of course, a key reason for the profit warnings has been a weaker than expected Asian economy, driven largely by China posting lower growth numbers than perhaps many investors were anticipating.
Looking Ahead
However, next year could be a very different story, with Standard Chartered expected to increase its earnings by 10%. If met, that would be a hugely impressive turnaround and show that, while no region of the world is immune to challenging economic periods, Standard Chartered’s focus on Asia leaves it well positioned to post excellent growth numbers over the medium to long term.
Valuation
Clearly, two profit warnings in the same year are going to hit sentiment. And, in Standard Chartered’s case, this has led to a fall in its price to earnings (P/E) ratio so that it now stands at just 9. That appears to be unjustifiably low, since although it is having a tough year, earnings are set to be just 1% lower this year, before recovering by 10% next year (as mentioned). Given these figures, a P/E ratio of 9 seems to be too low and equates to a price to earnings growth (PEG) ratio of just 0.9. As a result, there is tremendous scope for an upward rerating in 2015.
Yield Potential
One benefit of a lower share price for new investors is a higher yield. In Standard Chartered’s case, this means a current yield of 5.5%, which is very well covered by profit at over two times. This shows that a dividend cut is unlikely, which bodes well not only for the reliability of future payouts, but also for the potential of dividend per share growth. With dividends expected to be 3.8% higher next year, income seeking investors could bid up the price of Standard Chartered’s shares and push them higher in 2015.
