Join our community of smart investors

StanChart outperforms

Shares in the emerging markets focused bank have surged during the past year as its restructuring programme has progressed
January 24, 2017

Shares in Standard Chartered (STAN) have outpaced its major UK-listed banking rivals during the past 12 months, up more than half in price as the bank's restructuring programme has started to restore confidence. Analysts at both Bank of America Merrill Lynch and Goldman Sachs raised their price targets earlier this month, and StanChart separately closed three shipping finance deals worth more than $1.6bn (£1.3bn).

IC TIP: Hold at 763p

At the end of 2015, new boss Bill Winters announced a £3.3bn rights issue, scrapped that year's final dividend and set a return on equity (RoE) target of 8 per cent to be achieved by 2018. The bank aimed to refocus on affluent retail clients instead of investment banking, reform its capital-intensive businesses and take the hit of restructuring costs and writedowns amounting to $3bn by the end of 2016.

Concerns over a "bad debt explosion" in China and the bank's balance sheet, as well as the downturn in the oil price, all contributed to negative sentiment towards the stock, says Cenkos analyst Sandy Chen. "There was a lot of valid cause for concern and the share price reflected that," Mr Chen says.

The situation has started to improve. Overall loan impairments during the first half of 2016 were down more than half on the previous six months. These declined by a further 5 per cent quarter on quarter to $596m during the three months to the end of September. Gross non-performing loans remained high, but were stable on the previous quarter at $12.8bn, and have been broadly unchanged since the final three months of 2015. What's more, the bank has now incurred around $2.1bn of those restructuring charges.

A rally in commodity prices and sentiment towards China has also helped improve the mood towards the bank. "The absence of big profit warnings that characterised Standard Chartered two years ago ahead of the rights issue [reflect that] these concerns and these risks have materially diminished," Mr Chen said.

Shore Capital analyst Gary Greenwood upgraded his forecasts for adjusted EPS for the three years to 2018 after the third quarter delivered stable income, adjusted pre-tax profits and capital ratios. However, he has kept the stock on a hold rating, given management's statement at the half-year stage that it would take longer than expected to achieve its 8 per cent return on equity target.