Banks are still out of fashion, but even in the depths of the financial crisis one name that managed to retain investor confidence was Standard Chartered. Its trading statement this week confirmed the view that it is one of the best managed banks in the world. So is it worth paying for this expertise?
What is it?
A UK bank with a history dating back to 1853, which serves customers almost entirely in Asia, the Middle East and Africa. The company is listed on the FTSE 100 index and the Hong Kong and Mumbai stock exchanges.
What are its strengths?
Last year Standard Chartered reported the eighth successive year of record income and profits, demonstrating a resilience that few of its banking rivals can match. It has a presence in 71 markets, generating 97 per cent of its pre-tax profit and 91 per cent of its operating income from Asia, Africa and the Middle East. This focus on the faster-growing economies of the world is combined with a conservative approach to risk, which means that it has high levels of capital, making it a safer bet from an investor’s point of view. There were no big write-offs during the financial crisis and the bank says that it does not have any direct exposure to sovereign debt in southern European countries such as Greece.
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And its weaknesses?
It is a player on emerging markets, where fears about rising inflation, largely driven by higher food prices, have pushed up interest rates and raised concerns about growth. These may prove to be short-term challenges, but they can’t be ignored when you are investing in a stock such as this.
Costs are another worry. Its cost-to-income ratio shot up to 55.9 per cent last year, from 51.3 per cent in the previous year, because of increased regulatory and compliance costs, along with a “war for talent” that pushed up staffing costs. However, in this week’s statement it said that costs were back under control, partly as a result of its headcount dropping because departing staff were not replaced. Finally, it operates in extremely competitive markets, where both local and international banks pose a challenge.
What do the key numbers tell us?
In the first half of this year difficulties in India, its star market in 2010, were offset by strong growth in Singapore, Indonesia, Hong Kong and China. As a result, the bank expects double-digit growth in income and profit compared with the first half of last year.
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Does it pay dividends?
It has a dividend yield of 2.9 per cent.
Are its shares attractively valued?
No, but they don’t look too expensive on 14.5 times earnings, compared with 11 for the banking sector.
Who are the key personnel?
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Peter Sands, once of McKinsey, is chief executive and has worked for the bank since 2002. John Peace is chairman.
Have any directors been buying?
On June 24 the non-executive directors Richard Delbridge and Jonathan Lowth spent £7,055 on the bank’s shares.
Any announcements coming up?
An interim statement on August 4.
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What are its prospects?
This week’s trading statement provides a good indication of where the business is heading and that things are looking rosy. If it continues to motor in the second half, it will deliver yet another record year of profits. It won’t escape a regulatory crackdown in the UK — if it finally happens — but its focus on the emerging world means that its shareholders have less to worry about than most. After a 10 per cent rise in the share price this week — and with the Greek situation and questions about emerging-market growth still in the air — it looks like a hold. However, it is worth buying on any falls.
Verdict Hold