This FTSE 100 stock is down 30% in six months. Is it an opportunity that’s too good to miss?

G A Chester discusses the valuation and prospects of a FTSE 100 (INDEXFTSE:UKX) company whose share price could be on the cusp of a massive recovery.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Question mark made up of pound symbols

Image source: Getty Images.

The Standard Chartered  (LSE: STAN) share price has declined 30% over the last six months. It seems to have become the forgotten bank of the FTSE 100‘s big five. However, Q3 results today have sent the shares up as much as 6% in early trading. Is this the beginning of a recovery? And an opportunity for investors that’s too good to miss?

Substantial progress

The Asia-focused bank (70% of income) is coming to the end of a three-year transformation plan laid out by new management in 2015. The company has made substantial progress and while this hasn’t been as rapid as some investors were hoping, today’s results showed underlying profit before tax of over $1bn for a second successive quarter. Management was able to boast, “we now make as much profit in a quarter as we did in all of 2016.”

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Rising profit has come from top-line growth, ongoing securing of cost efficiencies and falling credit impairments. Management said these impairments are running at a quarter of 2016 levels and demonstrate that the quality of the bank’s balance sheet has substantially improved. At the same time, management said: “We know this franchise is capable of much more.” The company will set out how it intends to further improve financial returns over the next three years when it releases its full-year results in February.

Value credentials

City analysts are expecting Standard Chartered to post earnings per share (EPS) of $0.73 (57.5p at current exchange rates) for 2018 — a 55% increase on last year. At a share price of 555p, the price-to-earnings (P/E) ratio is a cheap 9.7 and the price-to-earnings growth (PEG) ratio is also highly attractive, being 0.2, which is far to the ‘good value’ side of the PEG ‘fair value’ marker of one. Looking ahead to 2019, the valuation continues to appeal. The P/E falls to just 8.4 on forecasts of 15% EPS growth to $0.84 (66.1p), while the PEG remains well in value territory at 0.6.

Investors can also expect to be rewarded with a growing dividend on the back of the strongly rising earnings. An expected payout of $0.21 (15.5p) a share this year, giving a yield of 2.8%, is forecast to increase dramatically to $0.30 (23.6p) next year, for a yield of 4.3%.


The company said today: “Income growth year-on-year was slightly lower in the third quarter impacted by Africa and the Middle East and we remain alert to broader geopolitical uncertainties that have affected sentiment in some of our markets. But growth fundamentals remain solid across our markets and we are cautiously optimistic on global economic growth.”

In my view, Standard Chartered’s cheap valuation offers investors a margin of safety should economic growth prove to be lower than currently forecast. Furthermore, I believe the long-term story of rising prosperity in the bank’s markets remains intact and should provide a tailwind for growth in the coming decades.

The bank has yet to resolve historical matters with US and UK regulators, relating to violations of sanctions laws in the case of the former and financial crime controls in the case of the latter. However, while the company says these “could have a substantial financial impact,” I reckon the resolution of the uncertainty could be as much a positive as a negative for investor sentiment. As such, I rate the stock a ‘buy’.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Standard Chartered. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How I’d apply the Warren Buffett method to buying shares

Learning from billionaire investor Warren Buffett, our writer explains his own approach to investing in shares for his portfolio.

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

This dividend share yields under 1% — but I’d still buy it

This dividend share has a low yield. So why would our writer consider adding it to his income portfolio?

Read more »

Young lady working from home office during coronavirus pandemic.
Investing Articles

Looking for a good share to buy? Here’s how I do it

Here are two approaches our writer uses when hunting for a good share to buy for his portfolio to aim…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

One cheap FTSE 100 share I’d buy for a new bull market

This FTSE 100 share is unloved and starting to look seriously cheap, says Roland Head.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

How I’d invest £500 in UK shares in 2022

Investing a small amount of capital in UK shares can result in high commission costs. Zaven Boyrazian explains how to…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 battered FTSE dividend stocks to buy in July!

I'm still searching the FTSE 100 for the best bargains to buy. I think these two big dividend shares are…

Read more »

Woman pulling baffled face
Investing Articles

Can I trust Lloyds’ 6.1% dividend yield?

The Lloyds' share price has sunk in 2022, causing the bank's dividend yield to leap. But can I really trust…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

3 top stocks to buy before the market rebounds

Edward Sheldon highlights three beaten-up stocks he'd buy before global stock markets stage a recovery from their 2022 declines.

Read more »