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Shares in FTSE 100 bank Standard Chartered (LSE: STAN) are down 7% from their £12.81 3 March 12-month high.
I believe the key driver behind this fall was market fear over the economic effects of US tariffs on its trading partners. After all, banks’ prospects are widely regarded as reflecting the economies of the countries in which they operate.
A prolonged continuation or increase in these tariffs remains a risk for the bank.
However, consensus analysts’ estimates are that its earnings will increase 11.1% a year to end-2027. And it is growth here that powers any firm’s share price and dividends higher over the long run.
The core business prospects
I think Standard Chartered benefits from its longstanding and extensive presence across many emerging markets.
For a start, it has been less exposed to the negative effects of falling interest rates than banks focused on the West. Many of these have suffered from a decline in their net interest income (NII). This is money made from the difference in interest that banks charge on loans and receive from deposits.
Indeed, its Q1 2025 results released on 2 May saw NII actually increase — by 7% to $2.8bn (£2.08bn).
Additionally positive in this context is that Standard Chartered has switched from an interest-based banking model to a fee-based one. The Q1 results showed double-digit income increases in its fee-based Wealth Solutions, Global Markets and Global Banking operations. This helped power a 12% jump in underlying profit before tax of $2.3bn over the period.
The bank continues to leverage its presence in these high-growth markets. On 21 May, it announced a further expansion of its private banking team in the United Arab Emirates. This is part of its broader strategy to invest $1.5bn in its ‘Affluent’ business over the next five years.
Are the shares going cheap?
To cut to the chase on the valuation, I ran a discounted cash flow analysis.
Using other analysts’ numbers and my own, this shows Standard Chartered shares are 44% undervalued at their current price of £11.89.
Therefore, their fair value is technically £21.23, so they look a huge bargain at their current level to me.
Will I buy them?
I have been thinking long and hard in recent weeks about buying the stock based on its high earnings growth potential. I believe this will push the share price – and dividend – a lot higher.
The only reason I am not doing so is that I already hold two bank stocks – HSBC and NatWest. Consequently, buying another would unbalance my portfolio, which means I would have to sell one of my holdings.
But which one? Both continue to look great prospects to me as well. However — crucially for me – NatWest’s dividend yield is 4.3% and HSBC’s 7.5%. Standard Chartered’s is only 2.4%. Therefore, I will stick with what I have.
However, if I had a bigger portfolio, I would add Standard Chartered shares to it as soon as possible.
