At Two-Year Lows, Is Standard Chartered PLC Worth a Gamble?


After a decade of non-stop growth, the music has stopped for Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) as at the end of last year management warned that the bank’s full-year profit for 2013 was going to be lower than previously forecast, due to poor performance at the company’s Korean unit.

Unsurprisingly, the market did not take this news well and Standard Chartered’s shares have been sliding ever since, hitting a two-year low last week. But has this sell-off gone too far and could it be time to buy?

Attractive valuation, juicy dividend

Well, at first glance Standard Chartered now looks cheap based on its current valuation. Indeed, according to City forecasts, Standard Chartered is currently trading at a forward P/E of only 11.6, which is the bank’s lowest valuation in a decade.

In addition, Standard Chartered currently offers a dividend yield of 4.1%, covered more than twice by earnings. This payout is also expected to expand around 20% by 2015.

Room for growth

Furthermore, after digging though Standard Chartered’s full-year trading update, it would appear that the bank is only being held back in a few markets, while profits in other regions surge. For example, during 2013 Standard Chartered’s income from its operations in Hong Kong, Africa and India grew at double-digit rates. 

Bid chatter

There is also that some speculation that Standard Chartered could become a bid target. This news is not new, these rumours have been doing the rounds for some time now; however, as Standard Chartered’s valuation is now lower than it has been at any point during the past decade, the chances of an opportunistic takeover are greater than ever.

In particular, it is widely speculated that Australia’s ANZ will make a bid for Standard Chartered, as ANZ seeks to expand it footprint in Asia. 

Running out of cash

Unfortunately, along with bid rumours, there is also speculation that Standard Chartered will have to tap the market for additional cash to boost capital ratios — this would be the third cash call in five years.

Fortunately, this is not a pressing issue as the bank currently has a Tier 1 capital ratio of around 11.4%, which is deemed to be adequate. Still, City analysts expect that this ratio is not likely to improve over the next few years as the bank reinvests profits to drive growth.

With this being the case, some analysts have speculated that the bank could be heading for another rights issue near the end of the decade to bolster capital ratios

Foolish summary

Overall, Standard Chartered currently looks attractive on a valuation basis and still has plenty of room to grow in emerging markets so the bank could be worth a gamble.

Still, there is more to Standard Chartered than its attractive valuation. However, many investors like yourself may find the towering numbers and complex formulas used to value banks complicated.

But never fear! The Motley Fools top analysts have put together this free report entitled"The Motley Fool's Guide To Investing In Banks" to help you decipher the code of the banking world.

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> Rupert does not own any share mentioned within this article. The Motley Fool owns shares in Standard Chartered.