Standard Chartered PLC vs Royal Bank Of Scotland Group plc: Which Is The Best Turnaround Story?

RBS (LSE: RBS) (NYSE: RBS.US) and Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) have both made slow starts to 2015, with their share prices being down 2% and flat respectively since the turn of the year. However, over the last year, the difference in performance is staggering, with RBS being up 13% and Standard Chartered seeing its share price slump by 25%, as multiple profit warnings have caused investor sentiment to weaken.

Looking ahead, though, is Standard Chartered now better value for money than RBS? Or, is the part-nationalised bank still a more appealing turnaround story than its Asia-focused peer?


When it comes to their valuations, shares in both banks are dirt cheap. For example, their price to book (P/B) ratios are extremely low, indicate that there is excellent value for money on offer and, interestingly, are remarkably similar, with Standard Chartered having a P/B ratio of 0.77 and RBS’s P/B ratio being 0.75. While there is a chance that their asset bases could be written down, the outlook for the UK and global economy is relatively positive and, as such, it seems very difficult to justify such a low valuation.

It’s a similar story with regard to their price to earnings (P/E) ratios, with both banks seeming to offer excellent upside potential. For example, Standard Chartered has a P/E ratio of just 8.9, while RBS’s is also appealing at 12. Clearly, Standard Chartered is cheaper than RBS based on the P/E ratio and, when you consider that the FTSE 100 has a P/E ratio of 15.9, both stocks could see their valuations increase significantly over the medium term.

Income Prospects

As well as being cheaper than RBS, Standard Chartered is also the clear winner when it comes to income prospects. For example, it currently yields an incredible 5.4%, while RBS is yet to recommence dividend payments following the credit crunch. Certainly, RBS could become a top income play due to its improving bottom line, but Standard Chartered is performing in this area right now, which makes it a much stronger income stock.

Looking Ahead

Although Standard Chartered has delivered multiple profit warnings in the last year, its current share price seems to more than adequately price in the risk of further disappointment in this regard. In fact, it is incredibly difficult to justify such a low price for a high quality bank that is focused on what is set to be the fastest growing market for banking services in the world, with Asia having huge long term potential.

As such, and while RBS is a great stock to buy at the present time, Standard Chartered seems to be the better buy. Although it is priced as a turnaround story, its performance is forecast to be very strong over the next couple of years and, when combined with a low valuation and enticing yield, this makes it a hugely appealing buy at the present time.

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Peter Stephens owns shares of Royal Bank of Scotland Group and Standard Chartered. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.