One to watch

Published on Friday 26 June 2009 21:48

Standard Chartered 1,159p -8p Scotsman says Buy

BROKERS yesterday hailed Standard Chartered's latest update which indicated record profits for the first five months of 2009.

S&P Equity Research analyst Derek Chambers estimated first half pre-tax profits of US$2.67bn (1.6bn) versus $2.6bn in the same half of 2008.

According to S&P, wholesale revenues have benefited from market share gains, wider margins and favourable conditions for asset liability management.

Collins Stewart rated the bank a buy. Although the firm's Alex Potter said consumer bank revenues appear likely to fall this year, costs are guided as being some 10 per cent lower than last year.

"This is a stronger cost performance than we had assumed," said Potter.

Potter believed the rate of deterioration in the consumer bank appears to be slowing marginally. Offsetting this, wholesale loan impairments continue to worsen – and Potter expects this to continue into 2010.

Other wholesale write-downs do appear to be tailing off, positively. "On outlook, management does allude to 'tentative signs' of improvements in some markets whilst still seeing stresses in other areas – this is marginally more positive than the 5 May statement which simply alluded to "challenging" conditions," said Potter.

Standard Investment is reaping the benefits of bank recovery – Potter points out investment banks are enjoying a strong upgrade cycle. But revenues linked directly to financial markets are only about 40 per cent of wholesale banking revenues meaning that Standard Chartered is not as exposed to the upgrade cycle as some peers.

However, Potter says its performance is still strong in this business."Cost-income jaws also appear stronger here," he said.

&#149 The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.