Fundamental Insights About The Standard Chartered PLC Group (STAN)

  • Feb 25, 2019 GMT
  • Team Kalkine
Fundamental Insights About The Standard Chartered PLC Group (STAN)

Business Overview 

Standard Chartered PLC (Ticker Symbol: STAN) is a British multinational banking company, with headquarters in London, the United Kingdom. In the year 1969, through the merger of two separate banks-the Standard Bank and the Chartered Bank, Standard Chartered Bank was formed, with the aim of capturing the efficiencies of regional diversity. The group is listed on the London Stock Exchange, with further listing in two financial centres in Asia - Hong Kong Stock Exchange and National Stock Exchange in India. The group is a constituent of the FTSE 100 Index. 

The group offers a wide range of services and products, catering to companies of all size – from start-ups to multinational corporations and institutions. The group employs more than 86,000 people around the world, who come from 125 different countries. It has been in business for more than 160 years and now boasts 1,026 branches worldwide. The bank is present in 60 markets all around the world.

Management

The Board is Chaired by José Viñals, who was appointed the Group Chairman in December 2016. The current Group Chief Executive Officer is Bill Winters, CBE. The responsibilities of the Chief Financial Officer are held by Andy Halford.

Product Segment

The banks’ operations are divided into four segments: Corporate & Institutional Banking, Retail Banking, Commercial Banking and Private Banking.

  • Corporate & Institutional Banking engages in supporting clients with transaction banking, corporate finance, financial markets and borrowing needs. It operates across more than sixty markets, providing solutions to over 5,300 clients in major financial centres.
  • Retail banking offers services to over nine million individuals and small businesses, with an aim on increasing clientele of effluent. The bank provides digital banking services, along with deposits, payments, wealth management, among others.
  • Commercial Banking offers a wide range of services in 26 markets across Asia, Africa and the Middle East, serving over 40,000 local corporations and medium-sized enterprises. The group provides international solutions such as trade finance and corporate finance.
  • Private Banking offers a full range of investment, credit and wealth planning solutions to grow and protect the wealth of high-net-worth individuals across geographies. With an extensive network across Asia, Africa and the Middle East, the group provides clients with relevant market insights and cross-border investment and financing opportunities.

Key Financial Metrics (for nine months ended 30.09.2018, in $m)

(Source: Company Filings)

Financial Highlights

  • Underlying profit before tax of $3.4 billion in the first nine months of 2018 was up $0.7 billion over the year, or 25 per cent reflecting focus on improving returns.
  • Operating income of $11.4 billion grew 5 per cent on both a reported and constant currency basis as compared to the corresponding nine months last year, with net interest income rising by 10 per cent. All the business divisions have reported growth of 5-8 per cent.
  • Operating expenses of $7.6 billion were 5 per cent higher than the last year, with 4 per cent on a constant currency basis.
  • Credit impairment has decreased by around 50 per cent in the previous year, reflecting the positive impact of actions taken place since 2015 to enhance the credit quality of the Group’s balance sheet.

Ratios

(Source: Thomson Reuters)

Ratio Commentary

  • The bank’s net interest margin reported in 2018 was 1.58 per cent. A rise in interest rates across the globe have increased asset yields.
  • The operating leverage of the group has drastically improved but is still below the industry margin.
  • Loan growth went into negative territory as compared to last year, decreasing by 2 per cent or 1 per cent on a constant currency basis; reduced corporate overdraft balances in Hong Kong had an adverse effect on growth.
  • The leverage of the company has remained largely stable over the periods but is lower than the industry median.
  • The bank’s Group’s advances-to-deposits ratio improved from 68.2 per cent to 69.2 per cent at the end of the third quarter
  • The company’s pretax ROE is lower than the industry.

Share Price Commentary

  • On 22nd February 2019, STAN share closed at GBp 609.10, down by 0.62 per cent over the previous closing.
  • Stock's 52 weeks High and Low is GBp 864.20/GBp 514.20. At the closing price, the stock was trading 29.52 per cent lower than its 52w High and 18.46 per cent higher than its 52w low.
  • In the last one year, the share has fallen significantly by 26.61 per cent.
  • The 5-day average trading volume of the stock is 4,406,736.00, and 30-Day Average is 4,199,071.20.
  • The average traded volume for 5 days was up by 4.95 per cent as compared to 30 days average traded volume.
  • On the valuation front, the stock was trading at a trailing twelve months PE multiple of 11.4x as compared to the industry median of 9.3x.
  • The company’s stock beta was 1.35, reflecting relatively higher volatility as compared to the benchmark index.
  • Total outstanding market capitalization was around £20.15 billion and a dividend yield of 2.18 per cent.

Growth Prospects and Risks Assessment

  • Increasing interest in developed markets will help the bank to improve its interest margin but weakening economic data does not augur well for it.
  • The country risk and market risk in the last year has increased considerably, which may lead to strain on the margins and financials. Protectionist policies driven by nationalist agendas could disrupt established supply chains and invoke retaliatory actions. Countries could introduce tariffs on goods and services available domestically or from other economies. Such actions would impact global trade.
  • The outcome of the UK referendum to leave the European Union (Brexit) could have implications on economic conditions globally because of changes in policy direction, which might in turn influence the economic outlook for the eurozone.
  • Increasing oversight by regulatory bodies has led to an increased potential for regulatory sanctions.

Conclusion

The company will have to remain watchful for political and economic uncertainties across the world. Rising interest rate can help the company to improve margins but can decrease demand for loan. Due to decreased cost because of push towards fin-tech and good prospects from some high-potential sectors such as private banking, the market can keep a watch on the stock going ahead.

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