Shares in Asian focused Standard Chartered Bank (STAN) fell by 7.7% to 466p on Tuesday after investors took fright at its innately cautious guidance about future growth and profitability. This stance contrasts sharply with other UK banks, that have espoused a more positive view.

Adjusted profit before tax of $1.075 billion was marginally ahead of a consensus figure of $1.065 billion. Reported profit of $996 million also exceeded expectations of $942 million.

This translates into earnings per share of $0.21. Management decided to refrain from paying a quarterly dividend, which will disappoint income investors.

UNAMBITIOUS

The outlook statement was decidedly cautious given the improved global economic outlook, saying ‘the economic recovery from the Covid-19 pandemic has continued to be uneven and punctuated by supply side disruption.’

This conservative stance was reflected in its level of provisioning. A figure of $107 million was double analysts’ expectations. This contrasts with a more upbeat view, regarding the rate of economic recovery, adopted by its UK listed counterparts.

Looking forward management have guided for a 5%-to-7% level of growth in 2022. This may be viewed as being decidedly unambitious. Interest rates are likely to rise given the mounting inflationary pressures, and this would provide a considerable kicker to earnings growth.

Moreover the current recovery in the macro-economy post Covid should also benefit banks including Standard Chartered.

Standard Chartered’s shares have risen by 9% year-to-date, the least of the major quoted UK banks, and currently sit 5% below their 12-month high.

EXPERT VIEW

Shore Capital's banks analyst Gary Greenwood said: ‘We continue to see Standard Chartered as the most undervalued stock amongst our mainstream UK bank coverage universe with upside of 28% to our latest published fair value of 650p.’

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Issue Date: 02 Nov 2021