LONDON -- Stock prices in Standard Chartered have suffered mild weakness in recent weeks, falling 12% from March's multi-year summit of 1,838 pence. In my opinion, the firm is due a positive rerating as earnings growth is ready to pick up and deliver increasingly appetizing dividends.
The company caught the headlines again in late March after chairman Sir John Peace said that Standard Chartered had "no wilful act to avoid sanctions" after breaching U.S. sanctions to Iran, countering the bank's earlier admission of wrongdoing for which it was fined 415 million pounds in 2012.
Decade of growth ready to roll on
The bank reported at the time that pre-tax profit edged 1% higher in 2012 to $6.9 billion pounds, pushed by an 8% income boost to $19.1 billion pounds, and representing the tenth consecutive year of profit and revenue growth. This was aided by the company's pan-global presence, with 25 of the regions serviced by the firm growing by double-digits from 2011 levels.
Broker Investec has pencilled in growth of around 10% per annum through to 2015, and its Wholesale Banking arm is expected to keep delivering decent returns. Revenues here rose 9% in 2012, and the firm commented that this division has made a great start to the year with January and February performance ahead of expectations.
A great all-rounder for growth and dividend investors
City forecasters expect earnings per share to advance 8% in 2013, to 158 pence, before advancing an additional 10% next year to 173 pence.
And the firm is expected to offer increasingly enticing dividends to investors in coming years. Standard Chartered boosted its full-year payout 10.5% to $0.84 (54.9 pence) last year, and this is expected to rise to 60.3 pence and 66.2 pence in 2013 and 2014 correspondingly. These payments come attached with yields of 3.7% and 4.1%, ahead of the forward 3.3% FTSE 100 average.
Moreover, payments for these years are covered 2.6 times by forecast earnings for these years, well ahead of the safety benchmark of 2 times.
Standard Chartered currently deals on a P/E rating of 10.2 and 9.3 for 2013 and 2014 respectively, imparting a weighty discount to a forward earnings multiple of 12.5 for the broader banking sector. It also trades on a price/earnings to growth rating of 1.4 and 1 for this year and next -- a figure around 1 is generally considered decent value.
Given the company's exceptional growth prospects and attractive dividend policy, I believe that the stock represents a steal at current levels.
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Royston does not own shares in any company mentioned. The Motley Fool owns shares in Standard Chartered. The Motley Fool owns shares of STANDARD CHARTERED. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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