The Motley Fool

Why I’d still buy Standard Chartered plc despite mixed Q3 results

Shares of Asia-focused bank Standard Chartered (LSE: STAN) fell by as much as 6% this morning, after the third-quarter results missed analysts’ forecasts.

Despite this, I believe that today’s figures still contained a lot of good news. In this piece I’ll look at the highlights from today’s results, and consider the potential challenges facing the bank. I’ll explain why I think the shares are still cheap enough to offer decent upside potential.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Good news

Although it may be slower than hoped for, Standard Chartered’s recovery certainly seems to be under way.

Underlying pre-tax profit for the third quarter was $814m, 78% higher than during the same period last year. There were also signs that the credit quality of the bank’s customers is improving. Loan impairments during Q3 totalled $348m, 42% lower than in Q3 2016.

Total income for the period was $3.6bn, 4% higher than last year. Meanwhile net lending has risen by 3% to $277bn since the end of June.

Not such good news

The drive to reduce costs hit a speed hump during the third quarter. Total expenses rose by 4% to $2.5bn. Management said that this is a result of “accelerated investments in areas of competitive differentiation” plus the cost of stronger controls and processes.

Measured over the full year, regulatory expenses are expected to be “slightly higher”, while other expenses are expected to be broadly flat.

Another potential concern is that growth in the group’s largest division — Corporate & Institutional Banking — remains slow, at just 2% so far this year. There’s a risk that the firm could start to lose market share in its core business.

Looking ahead

Standard Chartered shares have risen by 50% from their 2015 rights issue price of 465p. But at 700p, the stock still trades 30% below its last-reported net asset value of $13.56 per share (about 1,020p).

The question for shareholders — including me — is whether chief executive Bill Winters can improve the profitability of the company’s operations enough to justify a higher valuation.

The main measure of banking profitability is return on equity. The firm didn’t provide an update on this today, but the half-year results in August showed that underlying return on shareholders’ equity rose to 5.2% during the first half, from 2.1% during the same period of 2016.

So 5.2% is still too low, but the rate of increase here is encouraging. Given the improvement in pre-tax profits seen during the third quarter, my view is that it makes sense to continue holding Standard Chartered for the full year in the hope that return on equity will continue to rise. That’s certainly what I intend to do.

Dividend hopes

Broker consensus forecasts suggest the board may decide to restart dividend payouts this year, after suspending them in 2015. Analysts have pencilled in a final dividend of $0.14 per share, giving a prospective yield of 1.5%.

I’m not sure how likely a payout is for 2017, but I do believe we can be more confident of a payout in 2018. Analysts are forecasting a payout of $0.33 per share for next year, equivalent to a yield of 3.5%.

In my view that’s worth holding on for, given the potential for long-term growth.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Roland Head owns shares of Standard Chartered. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.