Up 10% in a day! Is this the start of a rally for this FTSE 100 stock?
Picture supply: Normal Chartered plc
This FTSE 100 inventory caught my eye after I seen the share worth up virtually 10% in a single day final week. So I made a decision to analyze whether or not that is the beginning of one thing larger, or only a one-off acquire.
Strong earnings
Normal Chartered (LSE:STAN) hit a brand new yearly excessive final week after posting outcomes that beat expectations. The UK-based financial institution reported a 5.5% rise in first-quarter pre-tax revenue following a lift in its buying and selling division. Revenues rose 6.4% to $5.2bn, with per-share earnings now anticipated to rise 20% this 12 months to $1.45.
Though the financial institution is headquartered in London, most of its enterprise is now in Asia. It’s majority-owned by Singapore-based Temasek Holdings and has turned down a number of takeover bids from the UAE’s First Abu Dhabi Financial institution. In October final 12 months, the shares fell 12% after it reported a virtually $1bn loss from investments in China.
So might this latest increase be a precursor to a revival?
Another financial institution inventory
Whereas Normal Chartered could also be a lesser-known financial institution within the UK today, it’s nonetheless thought of systemically essential by the Monetary Stability Board (FSB), a world physique that gives recommendation and steerage relating to the worldwide monetary system. And those that’ve gazed on its towering company workplace in Singapore’s well-known Marina Bay can have little question about its world significance. However does that make it a greater possibility than the native excessive avenue banks which might be family names? Perhaps.
One engaging prospect is its indifference to the tides of the British financial system, offering publicity to a distinct side of the UK monetary sector. This might add a degree of diversification to my portfolio that native financial institution shares might not be capable to present. Key competitor HSBC might be probably the most related however might have fewer development prospects. From what I’ve seen, most analysts anticipate its earnings to say no by 3% or extra within the subsequent three years. However, Normal Chartered is anticipated to develop earnings by 9.2%.
What’s the catch?
Normal Chartered lacks that key ingredient that makes another financial institution shares so engaging – a excessive dividend yield. At solely 2.8%, it’s not very spectacular subsequent to HSBC’s 7% yield. So whereas the latest development appears good, it does have some downsides and dangers related. As an example, I’m considerably involved with the financial institution’s credit score impairments in China. It revealed $165m of writedowns within the first quarter, up from solely $20m final 12 months. That’s a regarding improve. On high of that, it’s been compelled to place apart $100m in potential compensation for losses associated to an fairness funding scheme in South Korea.
However regardless of the above points, the inventory’s efficiency has been enhancing. The latest share worth development recovered virtually all losses made final 12 months, bringing the worth near a brand new yearly excessive. Primarily based on future money circulate estimates, some analysts calculate it might be buying and selling at 60% beneath honest worth. And with it now up 31% since this 12 months’s low, traders are beginning to take notice. It’s caught the eye of a number of main brokers, with each Jefferies and Berenberg placing in a Purchase ranking for the inventory final week.
If the present rally continues and the worth breaks above final 12 months’s excessive of 758p, I will surely contemplate shopping for the shares.