Credit Suisse has taken the red pencil to Standard Chartered PLC (LON:STAN), lowering estimates for the emerging markets-focused bank and cutting its target price to 545p from 690p ahead of third-quarter results due next week.
In a note to clients, analysts at the Swiss bank said they have cut their 2018-2020 adjusted earnings per share (EPS) estimates by 2-5% driven by lower revenue growth, with revenue forecasts cut by 1%.
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The analysts pointed out that the reductions follow the 4.4% cuts they made to 2019/20 EPS estimates following Standard Chartered’s second-quarter results.
They said they have also incorporated a US$1.5bn fourth-quarter charge relating to the potential settlement of the US investigations into Iran sanction breaches, as reported in the press.
This has driven a 74% slash to 2018 reported EPS estimates to US$0.15, and the analysts still think the risk is to the downside.
They said they expect the lender to miss the 2018 targets its management set at the time of the group’s November 2015 rights issue for an 8% return on equity (RoE) target which equated to pre-tax profit of around US$5.2bn, with the latest consensus for RoE of 5.1% and pre-tax profit of US$4.1bn respectively.
Reports cost-savings note being delivered
The analysts noted that Standard Chartered’s management already revised its 2018 cost target higher by +3% (US$0.3bn) and said recent press reports suggest cost savings are not being delivered and job/investment cuts may be announced to counter the slowdown in top-line growth.
They added: “We expect investment cuts to exacerbate the pressure on top-line growth and further reduce StanChart's competitiveness vs regional peers”.
The analysts concluded that Standard Chartered remains their least preferred of the UK banks and reiterated an ‘underperform’ rating on the stock.
In late morning trading, Standard Chartered shares on the FTSE 100 index were 1.4% lower at 533.10p.