Standard Chartered shares respond well to half-year results beat

Standard Chartered (LSE:STAN) maintained its momentum from a strong first quarter, making the half-year results as a whole a generally pleasing read.

The numbers themselves have for the most part sailed past estimates, largely driven by strong business activity and higher interest rates in many of the markets in which it operates.

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Operating income of $10 billion for the half-year to 30 June represented an increase of 11% from the corresponding period, with Net Interest Income (NII) growing by 5% to $5 billion. Of particular note, however, was non NII income, which leapt 22% to $5 billion, with notable contributions from each of its main units. Heightened trading saw the Markets unit income jump by 5%, while Global Banking rose by 14%. 

The particular jewel in the crown in these numbers was the Wealth Solutions business, which saw income growth of 25%, with net new sales more than doubling to $13 billion. In addition, Wealth assets under management grew by 12% to $135 billion, underlying the importance and profitability of a bank which has diverse income lines and where its affluent sector boosts overall performance.

At the headline level, reported pre-tax profit of $3.5 billion was up by 6% on the previous year, and on an underlying basis growth of 21% propelled the figure to $4 billion. The key metrics revealed a bank which remains in good shape, with the capital cushion, or CET1 ratio rising to 14.6% from 13.6%, comfortably in excess of the group’s target range of between 13% and 14%.

Net Interest Margin of 1.85% was up from 1.67% the previous year, with an underlying cost/income ratio of 57% against a previous 61.5%. A Return on Tangible Equity (ROTE) of 14% was boosted by improved overall profitability, while impairments of $73 million were made on a prudent basis, largely relating to the Wealth business. The fallout from the China property exposure is now likely to total some $1.2 billion, although much of the provision had previously been taken.

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Alongside the strength of the numbers and management confidence in prospects, where outlook guidance for full-year income growth was upgraded to be in excess of 7%, a further share buyback of $1.5 billion was announced as well as a rise in the dividend which takes the projected yield to 3.2%. While the bank has not traditionally been one for more generous dividend payments, the level of shareholder returns is under constant review. 

Despite the headwinds of its exposure to China and the real estate sector in particular, where its presence has been something of a double-edged sword, the group’s general exposure to Asia has offset any immediate concerns. Indeed, Standard previously highlighted that there were particular pockets of optimism throughout the region, such as the movement of capital away from oil in the Middle East and the inexorable economic growth in India, while the Wealth business is clearly reaping the rewards of targeting the affluent sector in the relevant regions.

After some years in the doldrums having once been the darling of the UK banking sector, Standard finds itself in something of a revival. Prior to this update, the shares had managed a gain of just 0.3% over the last year, as compared to a rise of 7.8% for the wider FTSE 100, although the figure was propelled by a gain of 21% over the last six months, with vague bid speculation after a previous rebuffed takeover from First Abu Dhabi Bank still fresh in the mind. 

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Over the last two years, however, the shares have added 29% and today’s warm reception to the numbers reflects optimism about the significant opportunities which the Asian region could provide over the medium to longer term. Indeed, the strength of the update could well prompt an upgrade to a market consensus which currently stands at a hold, albeit a strong one.