Standard Chartered PLC (LSE:STAN) shares jumped 6% to 770p after posting strong second-quarter results, including substantial shareholder returns, which analysts believe will help close the valuation gap with other FTSE 100 lenders.
Underlying pre-tax profit (PBT) of $1.8 billion was 10% ahead of consensus forecasts. Net interest income was 2% above estimates, while adjusted non-interest income was 2% below expectations due to shortfalls in the market, noted UBS analysts.
StanChart announced $2.7 billion in payouts in the first six months of a three-year plan aiming for at least $5 billion in total payouts.
At a 13.5% assumed CET1 ratio, StanChart trades at around a 40% discount to tangible net asset value, UBS noted, stating that "buybacks drive significant EPS and TNAV accretion."
Buybacks of $5 billion represent 21% of the spot market cap, "just two-thirds of the sector run rate of capital return. We think this is a crucial piece of the thesis to clarify," UBS analysts added, reiterating their 'buy' rating and 845p target price.
Shore Capital reiterated its 'buy' rating with a 955p fair value, while Keefe, Bruyette & Woods (KBW) maintained its 'underperform' stance and 750p target.
"Standard Chartered’s shares have been left behind by the large domestic UK banks this year, but its underlying operating performance is nonetheless improving, while share buybacks will help it capitalise on the considerable undervaluation in the stock," said Shore Capital.
Standard Chartered’s shares are up 9% year-to-date, broadly in line with the FTSE All-Share index, slightly better than fellow Asia-focused lender HSBC, but significantly worse than the large domestic UK banks Barclays, Lloyds, and NatWest.
KBW acknowledged a "solid set" of results and noted that the shares "are not expensive" on a consensus price-to-earnings (P/E) ratio of 5.7, "which is clearly positive from a buyback perspective."
However, KBW analysts remain cautious, citing concerns over regional political tensions increasing in the second half of the year and seeing "little reason to chase."