The short-term economic outlook is packed with possible pitfalls as the Covid-19 crisis continues. This means, as a UK share investor, I need to tread extremely carefully. But I don’t think it means I should stop buying stocks altogether.
It’s because I’m patient and invest on the basis of what returns I can hope to make over a long time period, say 10 years or more. I’m not put off by a bumpy recovery from the public health emergency.
Standard Chartered (LSE: STAN) is a UK share I think might deliver excellent profits growth over the next decade. This is even though the FTSE 100 bank faces some significant obstacles stretching through to 2030. Global interest rates have been rattling around record lows for decades. And it looks like they’ll reign for longer too as the world economy recovers from Covid-19.
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There’s also the threat posed by challengers to established UK banking shares like StanChart. Digital banking licences have grown like wildfire during the past half a decade. And Mordor Intelligence reckons the Asian customer bases of these new kids on the block will grow at an annualised rate of 46% between 2020 and 2025.
Demand for their services will likely be driven by convenience, favourable regulations and their ability to offer higher interest rates than traditional banks.
A FTSE 100 banking giant
This doesn’t mean the trading landscape won’t be ripe with opportunity for StanChart though. As I recently explained with regards to HSBC, I think the total financial services market in Asia will grow at a stratospheric pace over the next decade. Many believe that economic growth in the region will kick on from 2021 too.
Of course, Standard Chartered has significant exposure to Africa and the Middle East too. Banking services demand in these regions is also soaring amid rising wealth levels and strong population growth. Analysts at McKinsey reckon there’ll be 450m African banking customers by 2022. This compares with 300m just five years earlier, and 170m in 2012.
A UK growth, value, and dividend share
All of this explains why City analysts expect earnings at FTSE 100-listed StanChart to rebound 57% in 2021. They also reckon the bottom line will soar 38% year-on-year in 2022.
Such predictions leave the UK banking share looking pretty cheap today. Conventional wisdom suggests that any stock trading on a forward price-to-earnings growth (PEG) of below 1 might be undervalued by the market. Standard Chartered trades on a figure of 0.2 today.
Meanwhile, expectations of strong annual earnings growth lead brokers to predict dividend hikes over the medium term. Britain’s banks were instructed by the Prudential Regulation Authority not to pay dividends in 2020 as the Covid-19 crisis hit. Brokers expect SranChart to resume its dividend policy this year. And they expect total rewards of 17.6 euro cents and 23.6 euro cents for 2021 and 2022 respectively.
As a result, yields for these years sit at 3.3% and 4.4%. Bear in mind though that current earnings and thus dividend projections could end up disappointing if trading conditions for the UK share deteriorate.
