When I think of Asia-focused banking company Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US), two factors jump out at me as the firm’s greatest strengths and top the list of what makes the company attractive as an investment proposition.
1) Focused on high-growth markets
As far as I’m concerned, UK-headquartered Standard Chartered represents the cream of investing opportunities in the London stock market banking sector. The firm has always attracted for its growth potential but, lately, its traditionally robust valuation has softened thanks to wobbly emerging markets and depressed investor enthusiasm. When value meets long-term growth potential like this, my investment-opportunity receptors twitch like mad and, right now, I can’t keep them still.
Standard Chartered is different from the likes of Lloyds, Royal Bank of Scotland and Barclays. It has managed to avoid much, but not all, of the scandal and disgust hanging over its big-banking London peers and the main reason seems to be that just 8% of the firm’s operating profits come from the Americas, the UK and Europe. With Standard Chartered, you get a firm focused on Asia, where the firm earned 82% of its operating profit last year, and Africa, which delivered 10%.
It’s interesting to break the Asia profits down: 24% from Hong Kong, 12% from Singapore, 5% from Korea, 12% from India, 13% from the Middle East and 16% from other parts of the Asia Pacific region. These are fast-growing regions driven by the underlying fundamentals of economic growth across the emerging world such as demographics, urbanisation, the rapid rise of a consuming middle class, and investment in infrastructure. Standard Chartered reckons that by 2030, Asia will add just over 2.2 billion people to the world’s middle class, taking its share of the global total to 66 per cent. These are exciting statistics when you consider that the firm is trading in the geographical sweet spot for all this potential growth.
2) Record of profitability
Investor sentiment towards emerging markets turned sharply sour from May 2013, according to Standard Chartered’s CEO. One outcome was a 9% decline in earnings per share, which has stalled the firm’s upward growth trajectory of ten years. The directors believe this is temporary and that forward growth prospects remain compelling. It’s just the kind of setback that canny investors look for to deliver a value entry point to a longer-term growth proposition.
It’s hard to argue with the firm’s record on profitability, which it uses to reward investors through the dividend:
| Year to December | 2009 | 2010 | 2011 | 2012 | 2013 |
|---|---|---|---|---|---|
| Operating profit ($m) | 5,130 | 6,080 | 6,701 | 8,061 | 8,584 |
| Dividend per share (cents) | 66 | 70 | 76 | 84 | 86 |
Examination of past performance is no guide in isolation, but with the absence of a serviceable crystal ball, it’s a fine place to start.
What now?
Standard Chartered’s forward dividend yield is running at around 4.7% for 2015, which looks attractive given the firm’s longer-term growth prospects. However, I’m not going to pretend that banks are easy to analyse; if you’ve tried it, you’ll no-doubt see what I mean!
