FTSE 100 emerging markets specialist bank Standard Chartered (LSE: STAN) is up 79% from its 7 April one-year traded low of £8.75. This means it is now trading at a level not seen since 15 August 2013.
However, the two metrics are different, so the bullish run does not mean there’s no value is left in the stock. Price is just whatever the market will pay for a share at any given point. But value reflects the true worth of a business, based on its fundamentals.
In my experience, big profits can come from the gap between the two measures. This is because asset prices tend to converge to their true worth over time.
To ascertain if a price-to-value gap exists in Standard Chartered’s case, I re-examined the business and ran the key numbers.
A strong core business?
Ultimately, it is earnings (or profits) growth that drives any firm’s share price (and dividends) higher over the long term.
A risk comes from intense competition in the sector that may reduce its profit margins.
That said, analysts forecast that its earnings will grow by 7.6% a year to end-2027.
Its recent sets of results look to support such a view, in my opinion.
Its full-year 2024 results released on 21 February showed a 20% year-on-year jump in underlying pre-tax profit to $6.8bn (£5.2bn).
This occurred after the bank shifted its focus to fee-based rather than interest-based business following a decline in rates in several markets.
Most notable here was a record performance from its Wealth Solutions business. This saw a 29% rise in income growth and net new money increase by 61% to $44bn.
The fee-based Global Markets and the Global Banking businesses also saw strong income growth of 15%.
The H1 2025 results, released on 31 July, told the same story. Wealth Solutions, Global Markets, and Global Banking divisions each recorded double-digit income growth.
These in turn powered a 26% rise in underlying pre-tax profit to $4.383bn, far outstripping analysts’ forecasts of $3.83bn.
What’s the bank’s outlook?
On 30 October, the bank’s Q3 results were released, which saw underlying pre-tax profit jump 10% to $1.985bn.
Fee-based business grew by 12%, driven by Wealth Solutions and Global Banking.
Standard Chartered now expects that it will reach its goal of a 13% return on tangible equity (ROTE) this year. Previously, it had not expected to do so until the end of 2026.
Like return on equity, ROTE is calculated by dividing the company’s net income by average shareholders’ equity. However, ROTE excludes intangible elements such as goodwill.
The price-to-value gap
In my opinion, the best way to ascertain the true value of any stock is through discounted cash flow analysis.
It clearly identifies the price at which any share should trade, based on cash flow forecasts for the underlying business.
In Standard Chartered’s case, it shows the shares are 32% undervalued at their current £15.62 price.
The result is a fair value figure of £22.97.
I already hold two banking stocks – HSBC and NatWest – so owning another would upset the risk-reward balance of my portfolio.
That said, given its strong earnings growth prospects and deep undervaluation, I think the stock is a bargain worthy of other investors’ consideration.
