Standard Chartered Hits Nine-Year High as Strong Q3 Results Drive Upgraded Outlook

Highlights:

• Q3 Profit Surpasses Expectations: Standard Chartered reported third-quarter profit 21% above forecasts, boosted by record wealth and financial markets revenue.
• Raised Full-Year Outlook: Updated 2024 guidance projects 10% income growth with steady state growth at 5-7% for 2026, alongside improved return on tangible equity targets.
• Increased Shareholder Distributions: The bank raised its cumulative distribution target through 2026 to at least $8 billion, adding positive momentum to share value.

Standard Chartered PLC (LSE:STAN) shares have surged to a nine-year high after reporting third-quarter earnings that surpassed expectations, accompanied by a strengthened outlook and revised return guidance for the next two years. The bank’s Q3 results highlighted 21% profit growth above consensus, driven by standout performance in wealth management and financial markets, along with a 2% rise in net interest income and a 7% increase in non-interest income over City forecasts. The robust results have provided a strong foundation for Standard Chartered’s updated guidance, which has been positively received by analysts and investors.

Shore Capital described the results as "strong," highlighting that Standard Chartered’s performance was boosted by better-than-expected credit costs and a net interest margin (NIM) of 195 basis points. Analysts at Jefferies also pointed out that an improvement in treasury activities contributed to this NIM beat, adding to the bank’s encouraging financial picture.

Solid Revenue Growth and Record Wealth Income Drive Q3 Results

Standard Chartered’s Q3 revenue growth was bolstered by record contributions from its wealth management and financial markets divisions, both of which rose by 32% over the period. Net interest income came in 2% above consensus, while non-interest income beat expectations by 7%, underscoring the bank’s diverse income sources and strong performance across multiple business units. Credit costs were also notably lower, coming in 25% better than forecast, reflecting disciplined risk management amid challenging market conditions.

The bank’s net interest margin, a crucial profitability measure for financial institutions, reached 195 basis points, beating expectations slightly. Analysts at Jefferies attributed this to favorable shifts in treasury activities and the roll-off of short-term hedges, which together enhanced revenue. Standard Chartered’s ability to maintain a robust net interest margin despite market volatility highlights its resilience and adaptable business strategy.

Full-Year Guidance Raised with Optimistic Projections for 2024 and Beyond

Looking ahead, Standard Chartered has provided a positive outlook for the full year, increasing income guidance for 2024 to around 10% growth, which sits above the previously projected steady state range of 5-7%. While the bank noted that 2025 growth might fall slightly below this range due to rate conditions, it reaffirmed that 2026 growth should return to more stable levels. This enhanced guidance reflects management’s confidence in the bank’s growth trajectory, driven by strategic shifts and revenue diversification.

Jefferies analysts remarked that the 2025 guidance aligns with market expectations, noting that it’s consistent with estimates for a potential 1% decline in net interest income (NII) due to the rate environment. Despite this slight dip, the long-term growth prospects for Standard Chartered remain intact, with the bank indicating that income from non-interest sources could provide a solid buffer against rate-related challenges.

Upgraded Return on Tangible Equity and Increased Shareholder Distributions

Alongside improved income projections, Standard Chartered has raised its target for return on tangible equity (RoTE), with management now aiming to approach 13% by 2026, compared to the current 10% in 2023. This upward adjustment in RoTE guidance reflects Standard Chartered’s commitment to increasing shareholder value by improving its operational efficiency and optimizing capital allocation. Shore Capital analysts noted that this RoTE target aligns with consensus forecasts, which predict steady growth to 11.3%, 11.8%, and 12.4% over the next three years, respectively.

Adding further value for shareholders, the bank has raised its cumulative distribution guidance through 2026 to at least $8 billion, up from the previous $5 billion target. Although this figure aligns closely with the $8.4 billion anticipated by consensus, the increased distribution provides a positive signal of the bank’s confidence in its cash flow stability and future earnings capacity. This commitment to shareholder returns reflects Standard Chartered’s strategic focus on balancing growth with capital distribution, positioning the bank for steady long-term performance.

Market Response and Analyst Perspectives

Standard Chartered’s shares have surged in response to the strong Q3 results and optimistic guidance, climbing over 3% to reach 907p, marking the highest share price since 2015. Shore Capital highlighted the bank’s valuation metrics, noting that at the last closing price of 876p, shares were trading at 0.75 times price to tangible net asset value (P/TNAV). Given the bank’s updated guidance for RoTE improvement to 13% by 2026, analysts at Shore Cap believe that Standard Chartered shares remain undervalued, with potential for further re-rating toward tangible book value.

The analysts further noted that maintaining consistent earnings growth alongside increased shareholder returns could see Standard Chartered shares rise by as much as 21%, with a fair value estimate of 1,060p, based on the bank’s current performance trajectory. This estimate reflects optimism around Standard Chartered’s capacity to meet its strategic goals and to continue rewarding shareholders through steady income growth and capital distributions.

Positioned for Growth Amid Market Challenges

Standard Chartered’s Q3 results showcase its ability to navigate complex market dynamics while maintaining solid profitability and growth. The bank’s emphasis on wealth management and financial markets, along with disciplined risk management, positions it well to capitalize on future opportunities in these segments. As it strengthens its income base and targets steady RoTE improvements, Standard Chartered appears committed to delivering sustained value for its shareholders.

The updated guidance for cumulative shareholder distributions, along with a positive RoTE outlook, suggests that the bank is well-positioned to manage both internal and external challenges. By focusing on key growth areas and maintaining a robust capital management strategy, Standard Chartered demonstrates resilience in an evolving financial landscape, with plans to continue re-rating toward a valuation more aligned with its intrinsic value.

Conclusion: Strong Fundamentals Support Standard Chartered’s Long-Term Potential

Standard Chartered’s third-quarter performance and positive forward guidance highlight the bank’s strong fundamentals and commitment to creating shareholder value. With record revenue in key areas, improved net interest margin, and raised targets for RoTE and shareholder distributions, the bank is setting a solid foundation for future growth. The 2024 income growth guidance increase, coupled with ambitious RoTE targets, underscores Standard Chartered’s optimistic outlook for the coming years.

For investors, Standard Chartered’s latest results reinforce its position as a well-managed institution focused on delivering value through steady income growth, capital distribution, and strategic investments. As the bank continues to pursue its growth objectives, it remains poised to navigate the challenges and opportunities ahead, supported by a strong balance sheet and a clear path to enhanced profitability.