The Standard Chartered (LSE: STAN) share price has taken a severe punishment beating over the last decade. Slowly but surely, it looks like the worst is over. And today’s the first-quarter results point the way towards brighter days.
Standard Chartered shares are up 6.45% as I write this. That’s down to a 5.9% increase in pre-tax profit to $1.91bn, some $600m above expectations. Net profit increased 5% to $1.22bn, smashing estimates of $798m.
Bill Winters, CEO of the FTSE 100-listed bank, said that “business performance was strong and broad-based across our segments products and markets”, while pointing out that the bank still operates “in what continues to be an uncertain environment”.
Hidden FTSE 100 gem
It certainly is. The Asia-focused bank has been hit by the troubled Chinese economy, where the $240bn crash of Evergrande Group threatened contagion across the country’s property and banking sector. Another worry is that US-China tensions can trap the bank between a rock and a hard place, a similar issue seen by China-focused rival HSBC Holdings.
Higher interest rates have been a boon though, helping Standard Chartered widen its net interest margins (the difference between what it pays savers and charges borrowers). Net interest income rose 5% to $2.4bn.
It also benefitted from strong growth in India, another key market for the bank. Its trading unit did well from market volatility, while the wealth unit put on a good showing too. Overall, group operating income jumped 17% to $5.2bn.
Standard Chartered has largely slipped from my radar in recent years. Instead, I put my faith in UK-focused Lloyds Banking Group, which also had its struggles but was at least offering a high and rising yield.
Should I shift tack now? Standard Chartered can’t compete for dividends, with a trailing yield of 2.94%, roughly half what Lloyds pays me. However, markets expect growth, with a forecast yield of 3.47% in 2024 and 3.84% in 2025.
The Standard Chartered share price looks cheap, trading at 6.28 times earnings, although all banks look pretty cheap these days. The sector has never really swung back into favour after the travails of the financial crisis.
Stock on the up
The stock is still slightly down over five years, but it’s up 10.6% over 12 months, and 16.38% over the last three months (bolstered by today’s leap).
Bill Winters reckons it’s on track to hit full-year 2024 guidance, and is working hard to simplify the group’s management structure. It faces challenges though. Credit impairments actually climbed in Q1, from $20m to $165m. Higher interest rates aren’t all good news for banks.
Banking stock results are incredibly complex, making it very hard for private investors to see exactly what they’re buying. Standard Chartered’s are no different. Yet there are compensations.
The group is around two-thirds of the way through its $1bn share buyback programme, and investors will be hoping for an extension when first-half results are published. That may compensate for the relatively low yield.
Standard Chartered is now firmly back on my radar. I’ll buy it when I have the cash. I could do with more exposure to Asia. I never buy shares on takeover talk, but constant speculation about a bid adds a bit of a frisson.
