Standard Chartered (LSE: STAN) made news with a £1bn share buyback on 23 February, and the share price jumped 8% in early trading.
That beats the response to Lloyds Banking Group, which revealed a buyback twice the size a day earlier.
Still, Standard Chartered isn’t exposed to the same risks as the UK’s retail banks as it focuses on global corporate finance. That seems to show in the five-year price chart, where a 7% rise isn’t bad for the sector. Will FY 2023 results lead to a sustained share price run? I think they might.
Impairment
The bank’s impairment update drew my attention. Credit impairment dropped substantially on the previous quarter, down $232m to $62m. And that, to me, is more evidence that the inflation and interest rate squeeze that’s hurting the banks is coming to an end.
In addition to the buyback, the board has upped the dividend by 50%, to 27 cents (21.3p) per share. That’s a 3.5% yield based on the previous day’s closing share price.
It’s not the biggest in the bank sector. But it’s above forecasts, and it will have contributed to the share price rise on the day.
FY 2023
These new shareholder returns are possible, in the words of CEO Bill Winters, due to “strong results in 2023, continuing to demonstrate the value of our franchise and delivering our financial objective of a 10% RoTE [Return on Tangible Equity] for the year.”
The year brought in a 10% rise in operating income, to $17.4bn. And the bank’s full-year credit impairment charge of $528m is down $308m on the previous year.
In another comparison, Standard Chartered’s RoTE figure of 10.1% is some way behind Lloyds’ 13%. But the market seemed to like it better.
Outlook
The global nature of the company shows in its latest outlook statement. The bank said: “Whilst we expect global growth to stay below potential at 2.9% in 2024, as high interest rates put a drag on consumers, as well as investment spending, Asia is likely to be the fastest-growing region continuing to drive global growth, expanding by 4.9%. Easing inflation is likely to allow major central banks to start cutting rates in the second half of 2024, with a focus on supporting softening economic activity.“
Hmm, interesting that the board seems to think we won’t see interest rate cuts until the second half of the year. That could put a further drag on the UK’s domestic banks, if it’s right.
Valuation
I’m wary of putting too much faith in strong Asian growth in 2024. China is still a big unknown. And some commentators think its economic mess could be a fair bit worse than most people expect.
Saying that, I do think the current valuation pitches the Standard Chartered share price too low.
Forecasts put the price-to-earnings (P/E) ratio down at 4.5 by 2025. And even bearing in mind the possibility of a worsening in the world economy, that makes the stock one to consider buying in my book.
