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standard charter (LSE:STAN) shares have fallen 22% in a month. He is one of the biggest victims of the banking crisis that started with Silicon Valley Bank in the US.
For me, the sell-off in bank shares has been overblown, particularly with Standard Chartered. The Asia and Middle East-focused bank is fundamentally very strong, and with the share price falling, it looks like a bargain.
So, let’s take a closer look.
not BLS
Let’s start by noting that Standard Chartered is very different from Silicon Valley Bank, the tech financier that had to sell bonds at a loss when depositors needed to withdraw.
The big international banks have broader deposit bases, less reliance on the risky tech sector, and more diverse bond holdings. It is also important to note that while these banks may also have unrealized bond losses from increases in interest rates, most bonds owned will be held to maturity.
As such, I truly believe that this sale has been unwarranted.
However, there are risks that have been around for some time. These are related to a slowing global economy and very high interest rates, which could lead to defaults, an increase in bad debt and, eventually, more impairment costs.
Valuations and Fundamentals
Standard Chartered is very secure. Its liquidity coverage ratio (LCR), a measure of how many cash-like assets the bank has, is strong. Chief Executive Bill Winters recently said that the LCR was 147% before SVB and Credit Suisse got into trouble, and that it was “substantially higher now” without revealing the current level.
This should reassure investors.
But it hasn’t until now, and that’s why the stock price has gone down. It’s now trading for under 600p, and I think it’s a very attractive buy here.
The growth-focused bank is operating on a very low price-earnings (P/E) ratio of 7.1 and even the notoriously low dividend yield currently sits at 2.5%, that’s not bad. The P/E is well below the index average, around 12, and significantly lower than the stock previously traded.
undervalued? Well, some analysts certainly think so. Berenberg analysts raised their price target on the consumer bank from 750 pence to 1000 pence in February, citing “more and more evident” independent force.
“While a potential acquisition may provide some support for the shares, our attraction to Standard Chartered is based on the underappreciated strength of its unique global business,Berenberg said.
And I think they have a good point. It is one of the most growth-oriented banks in the FTSE 100with the vast majority of revenue coming from fast-growing markets in the Middle East and Asia.
In early February, Goldman Sachs It downgraded its stance on Standard Chartered shares to ‘neutral’ from ‘buy’. However, it is worth noting that Standard Chartered was trading around 100p higher at the time of the downgrade.
I am buying shares of Standard Chartered as the price goes down.
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