- Bank’s first-quarter earnings much better than expected
- Lower costs and higher interest margins both help
- Sour loan charges remain subdued
- Ongoing buyback takes advantage of lowly share valuation
“Standard Chartered may be the last of the FTSE 100’s five megabanks to report its first-quarter results but it is by no means the least, as profits are comfortably ahead of analysts’ expectations,” says AJ Bell investment director Russ Mould. “Coming into the earnings release, Standard Chartered’s shares had lagged those of the other big banks, and they were also the cheapest among the five, relative to the value of the net assets on its balance.
“Even after a sharp upward move on Thursday, Standard Chartered’s shares still trade at a discount to those of NatWest, HSBC and Lloyds on the basis of book, or net asset, value.
Source: Company accounts
“If chief executive Bill Winters and his team can maintain this strong momentum and double-digit percentage returns on equity, there seems little reason, on the face of it, for this discount to persist. Were the shares to move up to one times book value, that would take them toward £11, some 50% higher.
“Standard Chartered’s operational metrics, in terms of return on tangible equity, capital ratios and loan losses are not dissimilar to those of its peers, so, again, the discount is getting harder to justify, even if investor scepticism surrounding China, Hong Kong and emerging markets more generally explains why the market has looked at the bank with such a jaundiced eye.
Source: Company accounts
“Analysts had been expecting first-quarter pre-tax profit, on a stated basis, of $1.4 billion, down from $1.75 billion in Q1 2023, but the bank delivered an improved performance of $1.9 billion.
Source: Company accounts
“Further improvement in the net interest margin helped here, as did an ongoing efficiency and cost-cutting drive, while impairment charges for sour loans were low. By business segment, both Corporate & Investment Banking and Wealth & Retail Banking showed improved earnings.
Source: Company accounts
“The strong profitability is also helping Standard Chartered boost cash returns to shareholders. Analysts expect a higher annual dividend in 2024, for a fifth consecutive increase, and the bank is running a $1 billion share buyback (and that makes perfect sense when the shares are trading below book value, as it is effectively buying $1 of assets for 67 US cents, using the prevailing share price).
Source: Company accounts, Marketscreener, analysts' forecasts
“The aggregate value of the dividend and the buyback is estimated to be around £1.4 billion in 2024, or some 7.5% of the market capitalisation, a cash yield which easily beats inflation, Bank of England base rates and gilt yields.”
