Standard Chartered PLC (LSE:STAN) shares climbed to a nine-year high after turning in third-quarter results that beat expectations and upping its full-year outlook and tweaking returns guidance for the next two years.
It was a "strong" set of results, said Shore Capital, with third-quarter profit 21% above consensus forecasts, noted Jefferies.
Within revenue, net interest income was 2% ahead and non-interest income was 7% better than the City average prediction, with record wealth revenue up 32% and Financial Markets up 32% the key drivers.
Credit costs were 25% better than the consensus and net interest margin (NIM) of 195bps was a small beat, which Jefferies said was due to "an improvement in the mix in treasury activities as well as short-term hedge roll-off".
As well as updating guidance out to 2026 for capital returns, management maintained the 5-7% steady state income growth range for that period, though indicated that for 2024 income guidance has been upped to circa 10%, with the result that 2025 growth was expected to be below this range, which was largely expected.
"On the 2025 revenue growth point, management comment that it will be difficult to grow NII in 2025 on account of the rate environment and we note underlying loans -2% YTD, this would seem consistent with consensus estimates for a 1% YoY decline in NII for '25E. Thus, we do not regard the 2025 commentary as altering the consensus estimates," said Jefferies.
The analysts at Shore Cap also felt the full-year income growth guidance with no change to net interest income guidance "appears broadly consistent with consensus".
The outlook for return on tangible equity was also upgraded, with management now targeting an improvement from 10% in 2023 to "approaching 13%" in 2026, while the consensus forecast is for 11.3%, 11.8% and 12.4% in 2024, 2025 and 2026, "suggesting scope for a nudge up in the outer years".
Guidance for cumulative shareholder distributions through 2026 has also been increased to at least $8 billion from $5 billion before, albeit Shore Cap noted that consensus already has $8.4bn factored in.
Standard Chartered’s shares, having climbed over 31% in the year to date, added another 3% to top 907p on Wednesday, the highest since the summer of 2015.
Shore Cap pointed out that at the last closing price of 876p, StanChart shares traded on a P/TNAV of 0.75 times, versus management’s updated guidance for an underlying RoTE increasing steadily from 10% in FY23A towards 13% by FY26F.
"On this basis, the shares still appear fundamentally undervalued to us and we think they will continue to re-rate towards tangible book value. A simple roll-forward of our fair value estimate, keeping modelling assumptions unchanged, would see this increase to around 1,060p (from 1,020p), implying 21% upside."