Is this the FTSE 100’s most exciting investment?
Standard Chartered (LSE:STAN) is, in my opinion, one of the most compelling investment opportunities on the FTSE 100. Despite an 81% surge in its share price over the past 12 months, the bank remains undervalued compared to its global peers — admittedly many of them have surged too — while offering something a little different to its UK-based peers.
The value proposition
Standard Chartered’s forward price-to-earnings (P/E) ratio of 9.1 times represents a significant discount to its global financial peers, signalling potential for price appreciation. This is particularly appealing given the bank’s projected annual earnings growth in the high teens over the next three years. As such, we have a P/E-to-growth (PEG) ratio below far below one — around 0.5 — which is typically a sign of an undervalued stock.
Moreover, the bank’s price-to-book (P/B) ratio of 0.79 further underscores its undervaluation, trading at a 40% discount to the sector average. For context, JPMorgan, one of the most expensive banking stocks, trades at a P/B ratio of 2.1, highlighting the disparity in valuations.
Performance is top draw
Standard Chartered’s 2024 results were strong. Operating income reached a record $19.7bn and profit before tax jumped 20% to $6.8bn. The bank’s return on tangible equity (RoTE) improved to 11.7%, with expectations to approach 13% by 2026. Its net interest income rose 10% to $10.4bn, driven by its diversified geographic exposure, particularly in markets where interest rates remain stable.
The Wealth Solutions division was a standout performer, with income growth of 29% and net new money increasing by $44bn. This, coupled with strong results in Global Markets and Global Banking, positions the bank for sustained growth.
What’s more, Standard Chartered committed to a $1.5bn share buyback and a 37% increase in its full-year dividend to 37 cents per share. The bank has set a target to return at least $8bn to shareholders cumulatively from 2024 to 2026, further enhancing its appeal.
CEO’s confidence isn’t matched by analysts
CEO Bill Winters has consistently emphasised his belief in the bank’s undervaluation, particularly its trading below book value despite strong returns. And, it’s true. The bank is much cheaper than its peers. This can arguably be attributed to perceived risks such as geopolitical uncertainties, exposure to volatile emerging markets, and potential pressure on net interest margins as global interest rates fluctuate. Additionally, concerns over its retail banking scale-down and reliance on fee-based income could weigh on investor sentiment.
And this contributes to a mix bag from analysts. There are currently five Buy ratings, two Outperform, seven Hold ratings, and two Underperforms. This broadly suggests that analysts are confident in the stock, but the current consensus share price target is just 4% higher than the share price.
The bottom line
For me, Standard Chartered is among the most exciting stocks on the index because it’s a financial institution leveraging the growth of developing economies. However, it’s not one I’ve made yet. It’s certainly one I’m considering buying, and in all honesty, it’s one I should have made in January when I first became interested. Sometimes, if you watch a stock for too long, you miss opportunities.
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JPMorgan Chase is an advertising partner of Motley Fool Money. James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended Standard Chartered Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
