Standard Chartered (LSE: STAN) has lived the last few years almost back to front. What I mean by that is that, while many of its peers were posting disastrous results during the height of the credit crunch, it was going from strength to strength. However, now that banks such as Lloyds (LSE: LLOY) (NYSE: LYG.US) and HSBC (LSE: HSBA) (NYSE: HSBC.US) are showing signs of real improvement, it is Standard Chartered that is disappointing investors, as shown in its release this week.
However, despite short term challenges, Standard Chartered could be a great long-term buy. Here’s why.
A Tough First Half Of The Year
As mentioned, Standard Chartered released a disappointing pre-close trading update ahead of its half-year results. The major takeaway was that operating profits are around 20% lower than they were in the first half of 2013, which means that earnings for the full-year are set to be down on last year. The main reason for this is continued uncertainty and challenging trading conditions within the financial markets division, which is expected to continue to be a drag on performance.
Encouraging Growth Prospects
However, despite a tough first half, the second half of the year is expected to be ahead of the previous year’s second half. Furthermore, Standard Chartered is forecast to increase earnings per share (EPS) by 9% in 2015, which is above the FTSE 100’s expected growth rate and, interestingly, ahead of the growth forecast of Lloyds, which is set to grow EPS by 8% next year.
Potential In China
As with sector peer, HSBC, Standard Chartered has considerable potential in China. Indeed, it reported that its Chinese division was performing well and this is a key focus for the bank (and for HSBC) in the long run. That’s because China is transforming from a capital expenditure-led economy to one that is driven by consumer demand. Banks such as Standard Chartered and HSBC stand to benefit due to the requirement for business and personal loans with which to successfully complete the transformation. With their considerable exposure to China, Standard Chartered and HSBC stand to benefit in the long run.
Looking Ahead
Although Standard Chartered is experiencing a tough period, its shares offer good value and a strong yield. For example, Standard Chartered trades on a price to earnings (P/E) ratio of around 13.7 and yields 4.4%. This is similar to sector peer, HSBC, which has a P/E of 13.4 and yields 5.2% and also appears to offer good long-term value at current levels. Likewise, Lloyds has great potential, too, and is set to offer a yield of 4.4% next year and a P/E of just 10.2 should it return to profitability this year.
So, while Standard Chartered is experiencing a difficult period, it seems to offer the right mix of growth, income and potential to make it a great long-term buy.
