StanChart Q1 results threaten its share pricing, say analysts

What you need to know:

  • The shares are already trading at over 23 per cent premium to market in terms of price-to-book value, which stands at 1.72. The price stood at Sh203 per share last Thursday, but has hit a high of Sh243 in the past 12 months.
  • The current price is close to the 12-month low of Sh200, underlining investment bankers’ doubts on the bank’s premium pricing.

Standard Chartered elevated share pricing at Nairobi Securities Exchange (NSE) could come under threat following the recent drop in financial performance, Standard Investment Bank analysts say.

The shares are already trading at over 23 per cent premium to market in terms of price-to-book value, which stands at 1.72. The price stood at Sh203 per share last Thursday, but has hit a high of Sh243 in the past 12 months. The current price is close to the 12-month low of Sh200, underlining investment bankers’ doubts on the bank’s premium pricing.

A key cause of the doubt on pricing revolves around nonperforming loans (NPL) where gross NPL ratio has risen 1.4 percentage points to 14 per cent and loan loss provision is up 38 per cent.

“StanChart is currently trading at 1.72x price to book, a 23.4-per cent premium to the market. The lender has historically been trading at a premium relative to the market due to its above industry average ROaE (return on average equity); that appears to be under threat going by 1Q18 numbers,” said SIB.

The analysts said it was cautiously optimistic that the company could reverse the widening NPLs if there is recovery in economic activity in the second half of the year.

“We still remain cautiously optimistic of the lender’s efforts to reverse its widening gross NPLs as key sectors recover from the slump in economic activity from the second half of 2018. We, therefore, retain our ‘hold’ recommendation,” said SIB. The bank saw its net profit decline by 10.5 per cent in the first quarter of this year.

Its capital adequacy ratios were down slightly on account of compliance with the requirement to implement International Financial Reporting Standards (IFRS 9).

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