StanChart earnings disappoint, but ShoreCap stays at 'buy' on positive outlook
Standard Chartered’s annual results missed analysts’ forecasts by a long way on Wednesday, though the market gave a warm welcome to the 2014 report with Shore Capital choosing to keep its ‘buy’ recommendation.
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The broker’s Gary Greenwood highlighted that while profits came in well shy of expectations, the company held on to its dividend and concerns about a possible capital raise have subsided.
StanChart also published a list of enhanced financial targets focused on improving cost efficiency, capital management and returns, the analyst pointed out.
Adjusted pre-tax profits for 2014 dropped by 24% to $5.3bn, well below ShoreCap’s $6bn forecast due to higher-than-expected costs and impairments, while income marginally missed estimates.
However, the dividend was left unchanged at 86 cents, and the common-equity tier-one (CET1) capital ratio came in at 10.7% compared with ShoreCap’s 10.6% prediction.
StanChart is planning on lifting its CET1 ratio to 11-12% during 2015 and maintaining it at this level thereafter, while delivering $1.8bn of cost savings over the next three years and raising its adjusted return on equity from 7.8% to over 10% over the medium term.
Greenwood said: “The introduction of more aggressive action on costs and capital should be welcomed by the market, while the fact that the company has been able to maintain the dividend and is not signalling any intention to raise equity are also positives for the investment case.”
The shares are currently trading in line with the tangible net asset value (TNAV) and at a 14% discount to the total NAV.
“If management can convince the market that it can deliver on its strategy to improve returns and capital then the shares could re-rate back towards 1x NAV (c1.15x TNAV),” Greenwood said.
“Despite weaker-than-expected profit performance in 2014, we are encouraged by this announcement and re-iterate our positive stance.”
The stock was up nearly 5% at 1,021p by 10:34.