CEO of Standard Chartered (LSE: STAN) Bill Winters has been under some pressure of late, embroiled in a battle with shareholders over his pay. He is no doubt hoping that yesterday’s strong Q3 earnings numbers will help his cause.
Though the stock gained a mild boost on the news – up about 3% yesterday – as it stands today, the stock has given back almost all of these gains. This begs the question, are Standard Chartered shares going cheap?
In its third quarter, most of the headline numbers were good – not just strong themselves, but beating analyst estimates across the board. The company reported pre-tax profit was up 16% from the same period last year, to $1.2bn, while operating income climbed 7% to $3.98bn.
In a similar way to its rival HSBC (LSE: HSBA), Standard Chartered is heavily Asia-focused, and gets about two-thirds of its total operating income from the region. Hong Kong is the bank’s main market, and indeed the company has a second listing on the Hong Kong stock exchange (yesterday’s news seeing that stock also climbing about 3%).
This focus on Asia leads to that natural comparison with HSBC, and these latest numbers suggest Standard Chartered outperformed its rival in a number of key areas. Notably, Standard Chartered was able to complete a $1bn share buy-back, boosting its return on tangible equity (RTE) figure – a key measure of profitability – while HSBC recently had to scrap its RTE target of 11%.
That said, Standard Chartered has warned that its 2021 RTE target of 10% is at risk due to a “challenging environment”. As with other banks, this refers to US-China trade problems, low interest rates and the pro-democracy action in Hong Kong.
Its Asian business alone did not entirety dominate the positive numbers however, with income from Europe and the US increasing 19% in the quarter. This is another area where it outperforms HSBC – that bank making notable moves away from the west of late.
So is the stock cheap?
Today’s share price stands just below the £7 mark, up about 27% in the past 12 months, though still standing at about 11.3 times forward earnings – a fairly low valuation.
Its dividend story is a little more concerning for any income investors however, having only just started to pay out a yield again last year, following a two-year gap. Its current yield of 2.4% doesn’t offer much incentive, though analysts are expecting this to rise to perhaps 3.7% in 2020.
Meanwhile the pay dispute with Mr Winters may garner headlines, putting off some investors, but fundamentally it is a moral and political issue rather than a financial one – his salary and pension, as high as they may be, will have no real impact on Standard Chartered’s bottom line.
Personally I think the tension with the US and Asia, as well as the troubles in Hong Kong, might make it worth sitting on the sidelines for a little while longer before making a move to buy Standard shares. But its successes in Europe and the US certainly make it a more hedged play compared to HSBC for anyone looking to get exposure to financial shares in Asia.
Karl has no position in any of the shares mentioned. The Motley Fool UK has recommended Standard Chartered. 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.