Today I am outlining why Standard Chartered (LSE: STAN) could be considered a terrific stock for growth hunters.
Bottom-line bounceback anticipated this year
Standard Chartered has been at the mercy of declining financial market appetite over the past year or so, combined with rising regulatory problems and economic cooling in its key overseas markets. These issues prompted earnings to collapse 17% in 2013 to 168.61 US cents per share.
Promisingly, however, City brokers expect Standard Chartered to stage a robust bounceback from this year onwards. A 6% earnings improvement is pencilled in for 2014, to 179.7 cents, and a further 10% advance is anticipated for the following 12-month period to 197.3 cents.
These forecasts leave the business changing hands on a P/E multiple of 11.1 times prospective earnings for this year, well below a forward average of 15.5 for the complete banking sector. And this falls to just 10.1 next year, camped around the bargain yardstick of 10 times or below.
Of course the potential for prolonged weakness in developing nations could have negative ramifications on Standard Chartereds near-term growth projections. But I believe that these concerns are currently baked into the share price, and that the firms expanding presence in Asia should deliver bountiful long-term returns once financial conditions improve.
Re-focused and re-energised
Indeed, this months financial update boosted investor confidence that Standard Chartered has buried the worst of its problems in these key markets.
Operating income clocked in at $9.3bn during January-June, down 5% from the corresponding 2013 period but up 4% from the previous six months. And a 3% improvement in customer loans during the first half, to $305bn, from July-December further hinted at a tentative upswing in Asian activity.
Standard Chartered embarked on a significant transformation plan at the start of the year to boost its effectiveness in emerging markets, a move thatincluded the merging of its wholesale and consumer banking divisions. The business sources two-thirds of total profits from Asia alone, and will be hoping these steps will allow it to maximise the green shoots of recovery there.
And the firms commitment to Asian markets was affirmed this week when its private equity arm shelled out $35m to secure a stake in popular Vietnamese restaurant chain Golden Gate. The move marks the companys first foray into the country and follows other such flurries in neighbouring markets in recent months.
Elsewhere, the bank has also been engaged in extensive cost-cutting to improve earnings, in addition to a vast shedding of non-core assets to boost the balance sheet and further de-risk the business. Although the firm still has some way to go, I believe that a restructured Standard Chartered is in great shape to deliver stunning shareholder returns.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.