Wealth Franchise And Efficiency Program Will Transform Returns Over The Long Term

Catalysts

About Standard Chartered

Standard Chartered is an international bank focused on corporate, institutional and affluent retail clients, with a particular emphasis on cross border banking and wealth management.

What are the underlying business or industry changes driving this perspective?

• Record income in Wealth Solutions, strong investment products growth, and consistent affluent net new money of US$42b year to date point to a growing fee based wealth franchise that can support income and earnings resilience even when net interest income is under pressure.
• Ongoing growth in Global Banking, including strong origination, distribution, financing, and advisory activity across public and private capital markets, supports fee and commission income and can help sustain profit before tax.
• Double digit compound growth in Global Markets Flow income since 2019, supported by investments in digitization and a broader product and geographic offering, suggests recurring client hedging and trading activity that can underpin non interest income and capital efficiency.
• Fit for Growth and other efficiency initiatives, with US$566m of run rate savings already identified and a clear expense cap of below US$12.3b at constant currency for 2026, create scope for operating leverage and potential improvement in net margins and return on tangible equity.
• Expansion of the affluent franchise, including new wealth hubs such as Dubai and continued strength with globally minded clients in key Asian markets, supports higher margin wealth revenues and a richer mix of fee income relative to lower spread deposit business.

Assumptions

This narrative explores a more optimistic perspective on Standard Chartered compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Standard Chartered's revenue will grow by 5.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 22.8% today to 26.2% in 3 years time.
• The bullish analysts expect earnings to reach $6.2 billion (and earnings per share of $3.18) by about January 2029, up from $4.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 11.8x on those 2029 earnings, down from 12.2x today. This future PE is greater than the current PE for the GB Banks industry at 9.6x.
• The bullish analysts expect the number of shares outstanding to decline by 4.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.39%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Management still expects 2025 net interest income to be down by a low single digit percentage year on year and highlights a further 55 basis point rate headwind in 2026. A prolonged drag from lower interest rates or weaker pass through on deposits could weigh on revenue and limit earnings growth.
• The bank is increasingly leaning on fee based engines such as Wealth Solutions, Global Banking and Global Markets Flow. These are exposed to market sentiment, trading activity and client risk appetite, so a weaker or more volatile backdrop for capital markets and investment products could slow fee income and reduce profit before tax.
• High risk assets have risen by about US$650m quarter on quarter, including a sovereign downgrade into early alerts and additional overlays for Hong Kong commercial real estate. Any wider deterioration in sovereign or commercial real estate credit in the bank’s footprint could push credit impairment materially higher and pressure net margins.
• The Fit for Growth program targets US$1.3b of gross savings and an expense cap below US$12.3b at constant currency for 2026, but the heavier restructuring phase is still ahead. Execution setbacks, delayed savings or higher than expected implementation costs could keep operating expenses elevated and constrain return on tangible equity.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Standard Chartered is £21.1, which represents up to two standard deviations above the consensus price target of £16.99. This valuation is based on what can be assumed as the expectations of Standard Chartered's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £21.2, and the most bearish reporting a price target of just £14.06.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $23.7 billion, earnings will come to $6.2 billion, and it would be trading on a PE ratio of 11.8x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of £18.36, the analyst price target of £21.1 is 13.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.