Jefferies believes Friday’s seven-month low for the Asia-focused lender makes no sense given that last month’s poorly received quarterly update included unchanged 2024 guidance.
On NatWest, UBS still rates shares as a “buy”, but the City firm’s new price estimate is down from 290p to 230p on concerns over the outlook for share buyback and cost ratio targets.
The pair’s noisy third-quarter figures triggered 12% results-day falls, with Standard Chartered down to 625.5p on worries over its exposure to China’s economy and debt-laden property sector and NatWest at 182p on a bigger-than-expected fall in margins.
The worst session for NatWest since the Brexit vote followed a change in behaviour as consumers switched out of current accounts to higher interest savings and fixed-term products.
The net interest margin (NIM) fell a bigger-than-expected 19 basis points quarter-on-quarter, with new guidance for 2023 now above 3% rather than 3.15% seen previously.
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In line with its forecasts for Lloyds Banking Group (LSE:LLOY) and Barclays (LSE:BARC), UBS expects a lower NIM in 2024 and no recovery in 2025. This reduces earnings per share estimates by 18-20% for 2024/25, meaning NatWest trades on 6.1 and 5.6 times forward earnings and yields 8%.
UBS said its estimates left NatWest an attractively priced option based on the company’s reiterated ambition to deliver a return on tangible equity (ROTE) of between 14% and 16%.
The City firm said: “We retain a Buy on a 20% lower target price of 230p from 290p. We think the firm needs to post stable quarter-on-quarter net interest income to rally relative to a sector we think is attractively valued.”
As a result of the margin pressure, UBS has significantly lowered buyback forecasts and sees the bank having to skip its annual off-market repurchase from the state in 2025.
At Standard Chartered, the lender’s share price slump came after China credit provisions and an impairment on its holding in the country’s Bohai Bank contributed to a 54% deterioration in third-quarter profits to $633 million (£515 million).
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For the bank’s analysts, however, the sell-off appears overdone given the absence of downgrades to 2024 and 2025 numbers. They continue to forecast buybacks of $2.5 billion (£2 billion) a year, implying a total return of 35% of current market capitalisation through to 2025.
Jefferies added that the path to value creation at Standard Chartered lies in it executing a projected 12% ROTE, delivering the $7 billion (£5.7 billion) of dividends and buybacks between now and 2025 and effective communication of the company's investment case.
The bank’s new target price is 1,100p, which compares with the recent peak near to 800p in February. Factors driving the Jefferies investment case include a firm grip on cost control, the potential for volatility to continue benefiting the financial markets business and the fact that no disruptive restructuring is anticipated.
Jefferies adds that interest rate dynamics should now start to work in Standard Chartered’s favour as short-term hedges which had suppressed the NIM continue to unwind.
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