Emerging markets bank Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) was one of the darlings of the financial crisis, soaring to a 2010 high of 1,950p, before gradually starting the descent which saw it bottom out at 1,176p, earlier this year.
In my view, this put Standard Chartered firmly into bargain territory, and I added some of the bank’s shares to my portfolio. They’ve since rebounded somewhat, and currently trade around 1,300p, which I believe is still a low-risk buying opportunity — here’s why.
1. 10.8
The most reliable way to avoid losing money on a stock is to buy it when it’s cheap. Analysts have cut their earnings forecasts for Standard Chartered this year, but despite this, the bank’s shares currently trade on a 2014 forecast P/E of just 10.8.
Standard Chartered is facing currency headwinds in several markets and declining earnings in Korea, but this bad news is out in the open now and factored into forecasts. In my view, Standard Chartered’s shares look very cheap, and I recently added some more to my own portfolio.
2. 6.2%
Standard Chartered’s dividend has grown at a compound average rate of 6.2% per year since 2001 — despite the bank making modest cuts in 2008 and 2009.
Indeed, it’s worth emphasising that unlike its Asia-focused peer, HSBC Holdings, whose payout is still lower than it was before the financial crisis, Standard Chartered’s dividend had returned to pre-crisis levels by 2011, and in 2013 was 8.4% higher than it was in 2007.
This is a bank that takes its dividends seriously, which make Standard Chartered’s prospective yield of 4.0% even more attractive.
3. 11.2%
Standard Chartered has a common equity tier one ratio (CET1) of 11.2%. The CET1 ratio is the new regulatory standard for balance sheet strength, and a ratio of more than 11% is considered very healthy.
The bank’s conservative approach to lending — its loans only amount to 75.7% of its deposits — is also very attractive to me, as it reduces Standard Chartered’s dependency on external funding. In contrast, most UK banks have loan-deposit ratios that are close to, or above, 100%.
Buy, sell or hold?
I think that Standard Chartered’s shares are cheap enough to offset the ongoing risks from the short-term slowdown in some of the bank’s key markets, while its 4% yield means shareholders will be well-rewarded for their patience — and I’m not alone.
