Standard Chartered Plc’s Greatest Weaknesses

Two standout factors undermining an investment in Standard Chartered plc (LON: STAN)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When I think of Asia-focused banking company Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US), two factors jump out at me as the firm’s greatest weaknesses and top the list of what makes the company less attractive as an investment proposition.

1) Volatile share price

Banking companies operate in a cyclical sector. Their business performance tends to wax and wane with the ups and downs of macro-economic cycles. You only have to look at Standard Chartered’s record on cash flow and profitability to see that:

Year to December

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

2008

2009

2010

2011

2012

2013

Net cash from operations ($m)

23,730

(4,754)

(16,635)

18,370

17,880

9,305

Diluted earnings per share (cents)

201.3

165

193

198

202

167

Unadjusted figures like these are important for banks because their share prices tend to follow the numbers. Take Standard Chartered’s 2013 earnings-per-share result, for example. The year came in down around 17% and the share price has dropped by about 17% since the beginning of 2014 leading up to the results announcement. If we consider the share-price movement since the beginning of 2013, the fall is about 35%.

According to the directors, investor sentiment towards emerging markets turned sharply sour from May 2013 and Standard Chartered found trading difficult. It’s no surprise that the share price started factoring in a tough year ahead straight away, as stock markets are forward looking. However, bank shares tend to be early movers when it comes to mirroring macro-economic conditions, as the nature of the banking business locks it into such cyclicality in a direct way.

stanShare price swings like that bring both opportunity and threat to any investment in banks like Standard Chartered. Right now, with the directors making positive noises about 2014’s potential trading, and the way they are banging the drum about the strength of the firm’s longer-term growth story, I’m seeing more opportunity than threat in the firm’s recent share-price weakness.

2) Regulatory drag

According to the CEO part of Standard Chartered’s profitability challenges during 2013 were down to increasing costs due to rising rregulatory requirements and the British governments bank levy — an annual tax on all the bank’s debts.

The banks have been facing accelerated scrutiny and firming regulation for some time, and it seems unlikely that such pressure will lift. The banking regulatory landscape has been shifting and the increased costs resulting seem likely to be a permanent feature going forward.

What now?

Despite such concerns, Standard Chartered’s forward dividend yield is running at around 4.7% for 2015, which looks attractive given the firm’s longer-term growth prospects.

Is this a top choice for growing wealth now?

Before deciding, we think this pick is another must-see.

Discover ‘One Top Growth Stock from The Motley Fool’ absolutely FREE.

Though past performance does not guarantee future results, over the past 5 years, it’s seen consistent double-digit revenue growth. ‘Return on capital’ - a key measure of business quality - is a colossal 57%. That’s almost 6 times higher than the UK average!

Best of all, it has a cult-like following. Customers who’re raving fans, potentially spending more money, more often - whatever the economy.

In our experience, discoveries like this are extremely rare.

So please, don’t leave without seeing, ‘One Top Growth Stock from The Motley Fool’, which includes both the Risks and opportunities.

Claim your FREE copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin does not own any Standard Chartered shares. The Motley Fool owns shares in Standard Chartered.

More on Investing Articles

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »