FTSE 100 bank Standard Chartered (LSE: STAN) is down 17% from its 3 March one-year traded high of £12.18.
Much of this resulted from the US’s 2 April announcement of tariffs on its trading partners. This increased the possibility of a US economic downturn for many analysts, and banks broadly reflect the economies of the countries in which they operate. This remains a risk in the stock.
However, even if it does occur, the effects are less long-lasting than many investors may assume. The average length of a US-led recession since 1945 is around 10 months, according to the National Bureau of Economic Research.
As a longstanding private investor, my time horizon for my portfolios is much longer than that. Consequently, a price dip prompted by short-term factors in a stock with great long-term prospects is a huge opportunity in my experience.
I took a close look at Standard Chartered’s business and ran key numbers to see if this is true here.
How does the business look?
Another risk for Standard Chartered is declining interest rates in some of its key markets. This could decrease its net interest income (NII), which is the difference in money made on deposits and loans.
However, the bank has been shifting from an interest-based income model to a fee-based one. The change was most recently evidenced in its Q1 2025 results, which saw a 19% year-on-year growth in earnings per share. This was driven by double-digit income increases in its fee-based Wealth Solutions, Global Markets and Global Banking operations. This helped power a 12% jump in underlying profit before tax of $2.3bn (£1.73bn) over the period.
Interestingly as well to me was that its NII also actually rose — by 7% at constant currency to $2.8bn. This resulted from still-high interest rates in several key markets and from hedging lower interest rates through various financial instruments.
As it stands, analysts forecast that Standard Chartered’s earnings will increase 11% a year to the end of 2027. It is this growth that drives a firm’s share price and dividends over the long term.
Are the shares undervalued?
My previous incarnation as a senior investment bank trader and my present role as a private investor have taught me that price and value are not the same. And it is in the difference between the two that big profits are to be made over the long term, in my experience.
The key instrument I use to determine the difference is discounted cash flow (DCF) analysis. This identifies where any stock’s price should be, centred on future cash flow forecasts for the firm.
The DCF for Standard Chartered shows it is 53% undervalued at its current price of £10.68. Therefore, its fair value is £22.72, although share prices move down as well as up.
Should we consider the stock?
I already own shares in HSBC and NatWest, so buying another banking stock would unbalance my portfolio.
However, if I did not have these holdings, I would buy Standard Chartered shares. The earnings growth prospects are excellent, bolstered by its key strategic switch to fee-based rather than interest-based income.
I believe this will push the share price much higher over time. Consequently, I think it is well worth investors considering the stock if it suits their overall portfolio needs.
