Interactive Investor

ii view: Standard Chartered’s 10% share price rally explained

High exposure to Asia, focusing on improving efficiency and previously subject to a takeover approach. Buy, sell, or hold?

23rd February 2024 11:56

Keith Bowman from interactive investor

Fourth-quarter results 31 December

  • Currency adjusted income up 7% to $4 billion (£3.15 billion)
  • Adjusted or underlying profit up 74% to $1.1 billion
  • Capital cushion or CET1 ratio of 14.1%, up from 13.9% in Q3 
  • Final dividend of 21c per share 
  • Total 2023 dividend up 50% to 27c per share
  • $1 billion 2023 share buyback programme

Chief executive Bill Winters said:

“We produced strong results in 2023, continuing to demonstrate the value of our franchise and delivering our financial objective of a 10% RoTE [return on tangible equity] for the year. 

“We will continue to actively manage the Group's capital position with a target to return at least $5 billion over the next three years.”

ii round-up:

Standard Chartered (LSE:STAN) today detailed better-than-expected profits, helping the Asia-focused bank announce a $1 billion share buyback programme in tandem with a bigger-than-forecast dividend.

A lower than anticipated fourth-quarter bad debt provision fed into a 74% increase in adjusted profits year-over-year to $1.06 billion, beating City estimates of around $950 million. A final dividend of 21 US cents, topping estimates of 14 cents, takes the total 2023 payment up 50% from 2022 to 27 US cents per share. 

Shares in the FTSE 100 bank rose 8% in UK trading having come into this latest news up by close to a tenth in 2023. That’s similar to US rival Citigroup Inc (NYSE:C) over last year, but below a near one-quarter increase for Asia-focused rival HSBC Holdings (LSE:HSBA)

Standard operates across more than 50 countries, primarily in Asia. Currency adjusted fourth-quarter income, or revenue increased 7% year-over-year to $4 billion, aided by a 6% rise in net interest income which benefited from higher global interest rates.

Revenue on the same basis for its financial markets business fell 8% year-over-year, while income at its wealth management division rose 16%, helped by strong affluent client onboarding and net new money. 

Management’s ongoing focus on productivity helped its cost-income ratio decline 2% in 2023 to 63.4%, with its efficiency, or Return on Tangible Equity measure improving 2.4% to 10.1%.

Accompanying management outlook comments flagged a 2026 RoTE target of 12%, ahead of existing City hopes for 11%. 

Broker UBS reiterated its ‘buy’ stance post the results. An AGM is scheduled for 3 May. 

ii view:

Headquartered in the UK, Standard traces its history back to 1853. Asia generated the bulk of its profit during this latest financial year at round 80%, with Africa and the Middle East the balance and Europe and the Americas making a small loss. 

For investors, exposure to Asia, and Hong Kong and China in particular, is not without risk given now more strained relations between the West and China following the war in Ukraine. Events in the Middle East have resulted in the bank closing its representative office in Lebanon and selling its Jordan branch, while potential currency headwinds should not be overlooked.   

On the upside, exposure to expected future economic growth across Asia remains an important factor. Management’s focus on improving efficiency is ongoing, a potential takeover by First Abu Dhabi Bank eventually came to nothing but bid rumours could emerge again, while its focus on shareholder returns now gives a forecast dividend yield of over 3%.  

For now, and while some caution remains sensible given continued concerns about Chinese economic growth and its importance to Asia overall, management’s focus on efficiency and a consensus analyst fair value estimate in excess of £8 per share give shareholders reason to be optimistic.   

Positives: 

  • Both business type and geographical diversity
  • Focus on shareholder returns

Negatives:

  • Concerns for China’s economy
  • Global geopolitical tensions

The average rating of stock market analysts:

Strong hold

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