The share price of the FTSE 100’s Standard Chartered (LSE: STAN) has risen 44% since the 12-month traded low of £5.71.
However, such a rise does not mean there is no value left in a stock. This is far from the case with this emerging market banking specialist, in my view.
Are the shares cheap right now?
To work my way towards answering this question, I start with some key stock valuation measures, including the price-to-book ratio (P/B).
Standard Chartered currently trades at a P/B of just 0.5 – joint bottom (with Barclays) of its group of competitors.
These have an average P/B of 0.7 and also include NatWest and Lloyds on 0.8, and HSBC on 0.9. So Standard Chartered is cheap on this basis.
The same can be said of its relative valuation on the price-to-sales ratio (P/S). It trades presently at just 1.5 against a competitor average of 2.1.
So, exactly how cheap is it in cash terms? To work this out, I ran a discounted cash flow analysis.
It shows that the bank’s shares are 62% undervalued right now at its £8.20 price. This means that a fair value for the stock is £21.58.
It may go lower or higher than that, given the vagaries of the market. Nonetheless, it underlines to me that it looks like it is at a bargain-basement price right now.
Where’s the growth going to come from?
A key risk to the bank is declining interest rate margins between loans offered and deposits received in several countries. This is a function of the broader fall in interest rates in several major global economies.
As it stands though, consensus analysts’ estimates are that Standard Chartered’s earnings will grow by 11.9% a year to end-2026.
Crucially for me, it is focusing on growth areas that are not dependent on this differential in loan and deposit interest rates. Instead, these businesses make money from fees for high-value services given.
Wealth management is a prime example, especially in high-growth countries such as India. The bank’s income from this business jumped 27% year on year in H1 2024, to $618m.
Its Global Banking business (including capital markets activities and lending) is another. This saw an 11% increase in income over the same period to $488m.
Overall in H1, the bank’s reported profit before tax rose 5% to $3.492bn.
Will I buy the shares?
I like that most of its business is in high-growth emerging markets in Asia, Africa and the Middle East. These are regions with major demand for high-value fee-based banking services.
I also like that the bank has a target to keep costs below $12bn to 2026, alongside its growth strategy.
And I am a fan of the regular share buybacks undertaken that provide some support to the share price.
However, aged over 50 now with a focus on shares generating dividends yields over 7%, I cannot bring myself to buy it. The stock currently returns just 2.6%, although this is forecast to rise to 3.2% in 2025 and 3.6% in 2026.
That said, if I were at an earlier stage in my investment journey, I would certainly buy the stock for the reasons above.
