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Earnings look ahead: Standard Chartered

The share price of Standard Chartered has been sliding as emerging economies are slowing down.

Standard Chartered Bank
Source: Bloomberg

The company will announce its full-year figures on 23 February, and traders are expecting revenue of $15.92 billion and adjusted net income of $942 million. These forecasts equate to 12.6% decline in revenue and 76% drop in adjusted net income. The bank will also reveal its second-half results on the same date, and investors are anticipating revenue of $7.17 billion and adjusted net loss of $620 million, which compares with the first-half revenue of $8.49 billion and adjusted net income of $1.28 billion.

The bank has been hit hard by the economic slowdown in emerging markets, where it derives the majority of its revenue.  Standard Chartered was a major benefactor from the boom times in China and India, and now the bank is struggling as bad debts are on the rise. The London-listed company announced major restructuring in the last quarter of 2015, and that included abandoning its second-half dividend, large scale job cuts and a £3.4 billion rights issue. The poor performance in the Bank of England’s (BoE) stress in December highlights Standard Chartered’s problems, but the funds raised from the rights issue beefed up the balance sheet. Standard Chartered’s over-dependence on the emerging markets is now working against the bank and will continue to do so until we see a levelling off, of its rate of economic decline. 

  Trailing 12-month P/E Forward 12 month P/E Price/book value Dividend yield 5 year dividend growth
Standard Chartered 10.39 18.85 0.35 2.17% 2%
HSBC Holdings 8.58 8 0.65 8.11% 7.86%
Royal Bank of Scotland Group n/a 10.33 0.49 n/a n/a
Barclays 69.76 7.23 0.43 4.51% 9.35%
Lloyds Banking Group 18.98 7.32 0.88 1.39% n/a
FTSE 100 25.79 15.18 1.65 4.56% n/a

 

Standard Chartered’s low 12-month trailing price to earnings ratio indicates that the company is undervalued, and the rise in forward-looking price to earnings ratio suggests that future earnings will decline. It  has the lowest price to book value of all the banks listed above, and the ratio is nearly half that of the other Asian-focused bank – HSBC. When it comes to dividend yield and 5-year dividend growth, the bank is very much mid-table but since the second-half dividend was scrapped in November the current picture is certainly less rosy.

Earnings vs estimates

Out of the past eight full-year figures announcements, Standard Chartered exceeded the revenue expectation 50% of the time, and the bank topped the earnings estimate 62.5% of the time. Volatility can be expected on the day of the announcement and the share price has moved on average 4.56% on the day of the figures being revealed, and 87.5% of the time it has been a positive movement.

Standard Chartered revenue surprise chart

There is limited correlation between the revenue performance and the share price movement on the day of the announcement.

Standard Chartered earnings surprise chart

There is a reasonable amount of correlation between the earnings per share (EPS) performance and the share price movement on the day of the figures being released.

Banks are bullish

  Buy ratings Hold ratings Sell ratings
Standard Chartered 11 15 4
HSBC 14 17 5
RBS 12 13 2
Barclays 20 7 1
Lloyds 20 5 5


Equity analysts are bullish on Standard Chartered, and their average price target for the bank is £5.86, which is 39% above the current price. Standard Chartered has the lowest percentage (36%) of buy ratings attached to it from the group of banks above.

Standard Chartered’s share price has been sliding since late December and even though the stock bounced back last week, further losses look likely. The level 412p is acting as support and the first stumbling block will be the 200-hour simple moving average (SMA) at 449p. If there is an hourly close above the 200-hour SMA it would be a bullish indicator and the next major resistance levels in sight are 455p and 470p. Should we see an hourly close below 412p, that would be a bearish signal and 373p is the next big support level in sight. 

Standard Chartered price chart

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