It?s been a hugely disappointing year for Standard Chartered (LSE: STAN), with the Asia-focused bank delivering half-year profits that were 20% down year-on-year and seeing its share price fall by 10% since the turn of the year. It appears, therefore, that the bank is not worth adding to your portfolio. However, could this actually be the right time to buy, with the share price fall now meaning that shares offer great value? Indeed, could Standard Chartered make a positive contribution to your…
It’s been a hugely disappointing year for Standard Chartered (LSE: STAN), with the Asia-focused bank delivering half-year profits that were 20% down year-on-year and seeing its share price fall by 10% since the turn of the year. It appears, therefore, that the bank is not worth adding to your portfolio. However, could this actually be the right time to buy, with the share price fall now meaning that shares offer great value? Indeed, could Standard Chartered make a positive contribution to your portfolio moving forward?
Clearly, first-half results from Standard Chartered were a huge disappointment. However, the future could be much brighter for the bank than the past. That’s because it is extremely well placed to benefit from the continued development of emerging economies in the Far East, notably China.
Indeed, the Chinese economy continues to transition from a capital expenditure-led economy to a consumer-led economy. This opens up a huge opportunity for Standard Chartered, since demand for business and personal loans is likely to increase at a rapid rate in future, with banks that provide such loans being in a highly lucrative position.
However, even though long-term potential is significant, Standard Chartered is all set to bounce back strongly as soon as next year. Its bottom line is forecast to grow by an impressive 8%, which shows that the profit warning released earlier this year could turn out to be a temporary blip for the business.
Sentiment has been notably weak for Standard Chartered in 2014. The $300 million fine that was recently agreed seemed to weigh heavily on the company’s share price. However, sentiment can quickly change. For example, sector peer, RBS (LSE: RBS), experienced extremely weak sentiment throughout 2011 and the first half of 2012, when its share price declined by as much as 52%.
However, since then its share price has risen by 69% despite the bank not yet delivering a full-year of annual profit since the credit crunch started. This shows that sentiment can be extremely fickle: RBS was hugely unloved for a long time and yet is viewed as being an ‘up and coming’ bank today (albeit with a number of legacy issues that it needs to resolve). So, while Standard Chartered’s share price performance has been disappointing during 2014, it could be an ideal opportunity to buy a slice of the bank in anticipation of an improvement in sentiment moving forward.
Shares in Standard Chartered are priced to sell. For instance, they trade on a price to earnings (P/E) ratio of just 11.2 and, when the forecast earnings growth rate is taken into account, they have a price to earnings growth (PEG) ratio of 1.0 – which is very appealing. So, with profitability set to improve next year and sentiment at a low ebb, now could be a great time to buy a slice of Standard Chartered – especially if you’re a long term investor.
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Peter Stephens owns shares of Royal Bank of Scotland Group. The Motley Fool UK owns shares of Standard Chartered. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.