Today I am looking at why I believe the share price of Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) is primed to surge northwards in coming years.
An exceptional emerging market play
In my opinion Standard Chartered is an exceptional way to play the high-growth markets of Asia, Africa and the Middle East — regions which are responsible for some four-fifths of the company’s total profit, and rising.
Standard Chartered reported in December’s update that “Hong Kong and Africa both grew income at a double digit rate year on year, as did India” during 2013. Although troubles in Korea weighed on performance during the first half of the year — the company was forced to swallow a £1bn goodwill writedown during the period — strength in other territories outstripped problems on the peninsula.
The exceptional potential which the bank sees in emerging markets was underlined by the firm’s private equity arm securing a 13% stake in Botswanian supermarket chain Choppies Enterprises Limited last month. And in recent days the bank has also lent $184m alongside BlackRock to help develop the Vrindavan Tech Village in Bangalore, India, according to The Indian Times.
Earnings anticipated to recover strongly
Indeed, ongoing strength in these geographies — as well as a bounceback in its Wholesale Banking division — is expected to underpin a solid earnings turnaround over the medium term and beyond. Standard Chartered is anticipated to follow a 9% earnings drop in 2013 — results for which are due on Wednesday, March 5 — with increases of 10% and 9% in 2014 and 2015 respectively.
These figures leave the bank dealing on more-than-reasonable P/E ratings of 9.4 and 8.6 for these years, well within bargain territory below the value benchmark of 10. Given the sterling growth potential of its emerging markets, I reckon that the bank offers stunning growth prospects at a great price.
Check out that chunky yield
Standard Chartered has a great reputation with income investors owing to the firm’s ability to lift the dividend each year over the past five years. The company has hiked the full-year payout by inflation-busting rates since 2008, as earnings have headed steadily northwards.
And City brokers expect the business to continue lifting the payout at breakneck rate in coming years, with an 4.6% rise anticipated for 2013, pushing it to 87.9 US cents per share. This is expected to be followed by dividends of 95.2 cents and 103 cents in 2014 and 2015 respectively, projections which result in corresponding yields of 4.6% and 5%. These yields leave a forward average of 3.8% for the entire banking sector trailing in the firm’s wake.
