Questor share tip: Standard Chartered to post record profit

Questor share tip: Standard Chartered to post record profit

For a long time Standard Chartered has been Questor's favourite bank - but the shares are a hold

7:00AM GMT 10 Dec 2010

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Standard Chartered
£18.10 -68
Questor says HOLD

Standard Chartered

It generates more than three-quarters of earnings from Asia and other emerging markets and it was not involved in the excesses of debt that drove other banks to their knees.

The bank has been the best performer among the world's 25 largest lenders by market capitalisation since the start of the credit crisis in July 2007, according to Bloomberg data.

The shares fell after the company issued a trading update yesterday as the group warned about rising costs, although the group is still expected to post record profits this year. This would represent the eighth consecutive record financial year.

Costs are on the up because the bank is increasing its branch network, hiring more staff, and there are "increased regulatory and compliance costs". Competition for staff in emerging markets is also increasing, so wage inflation is high.

Richard Meddings, Standard's finance director, said the bank would try to bring cost growth back into line with income growth next year.

The shares are trading on a December 2010 earnings multiple of 14.5 times, falling to 13.1 next year. The yield is 2.5pc, but investors who bought in on the first recommendation last year would have locked in a yield of 5.8pc, which is well worth having.

In October, the bank announced a deeply discounted one-for-eight rights issue at £12.80 to shore up its financial position. At the time, Questor advised shareholders to take up their rights. The group raised £3.3bn ahead of new rules that force banks to hold more capital and for investing in growth.

Significantly, the bank made clear to the market in June that it had no direct exposure to the debt woes of governments in southern Europe.

The shares were originally tipped at £12.40 on June 4 last year, so the theoretical ex-rights price entry point base is now £12.44.

The shares are up 45pc based on the new ex-rights price, compared with a FTSE 100 up 20pc.

The rating on the shares remains a hold.

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