Standard Chartered 2022 preview: Where next for the STAN share price?

When will Standard Chartered release earnings?

Standard Chartered is scheduled to release fourth quarter and full year 2022 results on the morning of Thursday February 16.

Standard Chartered 2022 earnings consensus

Standard Chartered is forecast to report an 11.1% year-on-year rise in annual operating income (revenue) to $16.34 billion and a 23.7% rise in adjusted pretax profit to $4.82 billion. Reported profit is expected to be up 40% at $4.67 billion.

Standard Chartered 2022 earnings preview

Standard Chartered is set to outperform its London-listed rivals when it reports 2022 earnings, with the Asian-focused bank set to report stronger profit growth than all its rivals over the full year.

The bank’s net interest margin – which measures the amount it makes from credit products such as loans after it has paid interest on deposits and savings – is expected to come in at 1.4% in 2022, but it may have hit over 1.5% in the fourth quarter as the bank aims to accelerate margin progression in 2023, when it is aiming to boost it to around 1.65%.

The improvement is being driven by topline growth as higher interest rates and a strong performance in the financial markets, which has countered tougher conditions for its wealth management arm, as well as its focus to cut costs. Expenses rose throughout 2022 but Standard Chartered has done well to limit the growth below its revenue, leading to a much-improved cost-to-income ratio. We will see this deteriorate in the fourth quarter compared to the third as it wraps up staff payments for the year, but we should see the annual ratio fall to below 67% in 2022 from 71% in 2021. The improvement has been even better at constant currency, with foreign exchange providing a headwind at present.

The outlook for expenses in 2023 will be influential. Costs are forecast to rise 6.5% in 2023 to around $11.4 billion, accelerating from the 3.5% rise pencilled-in for 2022, but the cost-to-income ratio this year should still improve to around 64% thanks to faster revenue growth.

Standard Chartered should end the year in a healthy cash position with its CET1 ratio poised to come in at 13.9% in 2022. The bank has said it plans to ‘operate dynamically’ within its 13% to 14% target range. Notably, the consensus has a very wide range of between 13% to 16% because of the risk attached to its exposure to China’s real estate market and other countries such as Pakistan and Ghana. Credit impairments, which were driven by these countries in the last quarter, are expected to amount to over $760 million in 2022, over three times higher than what we saw the year before, and the outlook for 2023 will be under the spotlight.

The bank has said the faster progression with margins and its cost-to-income ratio means it remains on track to deliver a return on tangible equity of 10% in 2024, or possibly earlier. Markets believe this will come in at 8.1% in 2022 but have doubts that it can hit that target on schedule considering they have forecast 8.2% for 2023 and 9.3% for 2024. We could see Standard Chartered use share buybacks to help boost the figure.

Is Standard Chartered a takeover target?

Standard Chartered has been hitting the headlines recently thanks to media reports that First Abu Dhabi Bank was considering launching a takeover bid for the company before the largest lender in the United Arab Emirates said it was not currently interested.

In fact, that is the second time this year that First Abu Dhabi Bank has had to deny suggestions it was preparing to launch a bid, which Bloomberg suggested could have been in the region of $30 billion to $35 billion. Unsurprisingly, this has stirred some excitement for investors considering the bank currently boasts a market cap of £21.2 billion, equating to less than $26 billion to suggest there is upside.

A bid may not be forthcoming and Standard Chartered has long been rumoured to be a takeover target without a deal ever materialising, but the rumours do support the idea that Standard Chartered is potentially undervalued.

Where next for the STAN share price?

We have seen Standard Chartered shares become more volatile in early 2023 thanks to the takeover speculation, but the stock has continued to follow an uptrend that can be traced back to this time last year.

The stock, having fallen back since First Abu Dhabi Bank’s latest denial it is preparing a bid, has been testing the 737p ceiling we saw back in 2019 in recent days and this is the immediate upside target that needs to be recaptured. With the uptrend still intact, brokers believe the stock could climb to as high as 782p, implying there is just over 7% upside from current levels.

We have seen the RSI slip into overbought territory on the two most recent occasions that it has tested the rising trendline to suggest this should continue to hold. We can see that a supportive trendline has also emerged over the past three-and-a-half months, suggesting the current floor should be regarded at around 685p. The 50-day moving average will then come back into play if it slips below here. We could see the two trendlines create a wedge going forward, which will eventually cause one of them to fail, with the risk to the downside following the recent rally and limited upside seen by brokers.

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