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Jefferies stays at 'underperform' on StanChart ahead of full-year results

By Alexander Bueso

Date: Tuesday 19 Feb 2019

Jefferies stays at 'underperform' on StanChart ahead of full-year results

(Sharecast News) - Analysts at Jefferies sounded a cautious note on shares of StanChart again on Tuesday, pointing to the declining trend in consensus estimates for the lender and the multiple hurdles that it was facing in terms of growing its revenues, which they said may necesitate a downgrade of management's expectations.
The consensus forecast for the rate of growth in the lender's revenues for 2019-2021 was roughly 5.0%, which was already at the lower end of management's expectations.

Nonetheless, among the risks that StanChart was facing were slower loan growth in Hong Kong and Singapore, a scant tailwind from rising interest rates and its net interest margins may have peaked in the third quarter at 1.6%.

"Thus, consensus estimates look challenging and management's medium-term aspirations may need to be downgraded to reflect such considerations. We see risk for further downgrades: our underlying pre tax earnings forecasts for '19-21E are c15% below the Street," Jefferies added.

According to the investment bank, StanChart also needed to provide a convincing glide path as to how it was expecting to deliver returns greater than 10% within a reasonable time-frame.

"On newly established '21E forecasts, our models contemplate an ROTE of 5.6% on a CET1 ratio of 14.1%."

Hence, they reiterated their 'underperform' stance for the stock.

One silver lining was their now lower forecast for StanChart's cost of equity, which was cut from 11% to 10%, and when combined with a return on equity assumption of 5.6% and using 2021 as their reference year, saw them raise their target price for the shares from 348p to 438p.

The reason for the reduction in the assumed cost of equity was the belief that the stock-specific risk for StanChart had declines, the analysts told clients in a research note.

StanChart was due to publish its fiscal year 2018 numbers on 26 February.

Nevertheless, as of 1627 GMT the shares were trading at 615.10p, having fallen by 2.13%.

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