StanChart still faces hurdles, Nomura says

Standard Chartered's stock looks oversold in the near-term so there is upside to be had in the shares and with the announcement of a rights issue behind us investors will soon be past the point where they are fearful of the risks of dilution, Nomura said.

Banks

4,677.17

15:45 15/11/24

1.24%

57.25

FTSE 100

8,060.61

15:45 15/11/24

n/a

FTSE 350

4,453.56

15:45 15/11/24

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FTSE All-Share

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Standard Chartered

944.80p

15:45 15/11/24

0.66%

6.20p

However, there are two more hurdles to overcome which are still some way off, the bank said, noting that Asian economies have yet to bottom and non-performing loans to start falling.

If one expects a shallower cycle and an imminent inflection in the macro backdrop one might argue otherwise.

Yet Nomura´s forecasts were for the rate of growth in China´s gross domestic product to slow to 5.8% in 2016 and 5.6% in 2017. That compared to median consensus forecasts for an expansion of 6.5% in 2016 and 6.2% in 2017.

As regards the lender´s targets for a return on equity of 8% and less than $10bn in costs by 2018, the broker labeled them "conservative". However, it added: "Given macroeconomic risks and continuation of increasing NPLs, we don’t feel the need to give STAN any benefit of doubt at this stage."

Trading on 0.7 times price-tangible book value ex-rights and with near-term downside risks to its tangible book value, the stock is "around fair value on current prices".

The broker revised its target price on the shares to 640p on an ex-rights basis (with the then current price at 614.7p and 578.8p ex-rights), which in its opinion suggested approximately 10% upside.

Analyst Chintan Joshi reiterated his 'neutral' recommendation.

At 1525 GMT, StanChart shares were up 1.4% at 623.30p.