HSBC has upgraded its rating for emerging markets-focused banking peer Standard Chartered PLC (LON:STAN) to ‘hold’ from ‘reduce’ on valuation grounds following the lender’s first-half results on Tuesday.
In a note to clients, HSBC’s analysts pointed out that the FTSE 100-listed firm reported another disappointing set of results, triggering material downgrades to earnings per share estimates.
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They noted that Standard Chartered’s first-half revenues fell below target at 4.4%, while costs jumped 11% year-on-year, and to cap it all, customer lending - excluding repos - fell 1% in the quarter.
The analysts added that only an unsustainably low impairment charge, at 15 basis points of lending, rescued the bank’s headline pre-tax profit figure.
They noted that cost ‘creep’ is one major factor impacting Standard Chartered, while the stronger US dollar also looks set to weigh on reported earnings.
However, the analysts added, at the same time, the stronger US dollar, while bad news for reported earnings, is good news when those earnings are translated back for a sterling share price – as the pound has weakened by 7% versus the greenback in the second quarter of 2018.
Small target price cut
They pointed out that the net result is that even though their US dollar earnings estimates fall sharply, their sterling share price target only drops to 670p from 680p.
With that new target price only implying a 3.8% downside, the analysts have therefore upgraded their rating for Standard Chartered to ‘hold'.
They also noted that the stock is down 11% in the year-to-date, making it the worst performer in the UK bank space.
In late morning trading on Wednesday, Standard Chartered shares were 1.7% lower at 676.40p.