Regardless of buying and selling round a 12-year excessive, this FTSE 100 financial institution inventory nonetheless seems to be like a bargain-basement gem to me

Picture supply: Getty Pictures

FTSE 100 rising markets specialist financial institution Commonplace Chartered (LSE: STAN) is on a powerful bullish worth run. Actually, it’s buying and selling round costs not witnessed since early December 2013.

Some traders may see this development as unstoppable and search to leap on the shopping for bandwagon. Others might imagine it can not presumably proceed for much longer and keep away from the inventory.

Neither view is conducive to creating massive long-term earnings from inventory funding, in my expertise. This includes three a long time as a personal investor and several other years as a senior funding financial institution dealer earlier than that.

The one query I ask in such a scenario is whether or not there’s any worth left within the share. So, is there on this case?

The valuation proposition

One of the simplest ways I’ve discovered to determine whether or not worth stays in a share is the discounted money stream technique. This pinpoints the place any inventory worth ought to commerce, derived from money stream forecasts for the underlying enterprise.

In Commonplace Chartered’s case, it exhibits the shares are 32% undervalued at their present £14.49 worth.

Subsequently, their honest worth is £21.31.

Secondary confirmations of this under-pricing are additionally seen in comparative valuations with its friends.

For instance, the financial institution’s 2.2 price-to-sales ratio is joint lowest in its competitor group, which averages 3. These banks include Barclays at 2.2, Lloyds at 2.7, NatWest at 2.8, and HSBC at 4.3.

Commonplace Chartered can also be low cost on the price-to-earnings ratio, buying and selling at 10 in opposition to a peer common of 10.7.

And the identical applies to its 0.9 price-to-book ratio in opposition to the 1.1 common of its competitor group.

How does the underlying enterprise look?

Because the rate of interest forecasts in key Western markets declined, Commonplace Chartered modified its enterprise technique. It positioned extra emphasis on increasing its fee-based enterprise reasonably than on its interest-based operations.

Consequently, Q1 2025 outcomes noticed year-on-year double-digit earnings will increase in its fee-based Wealth Options, World Markets and World Banking operations. This helped energy a 12% leap in underlying revenue earlier than tax of $2.3bn (£1.7bn) over the interval.

In Q2, earnings progress in Wealth Options surged 20%, in World Markets 47%, and in World Banking 12%. This drove a 34% surge in underlying revenue earlier than tax over the quarter of $2.4bn.

A danger here’s a international financial slowdown, maybe because of uncertainty over US tariffs. In any case, any financial institution’s enterprise broadly displays the financial well being of the international locations by which it operates.

Nonetheless, consensus analysts’ forecasts are that Commonplace Chartered’s earnings will rise by 5.6% a yr to end-2027. And it’s exactly this progress that drives any firm’s share worth (and dividends) over time.

My funding view

I already personal shares in HSBC and NatWest, and having one other would unbalance my portfolio.

However I don’t want to promote both of them, as they’re performing nicely. In addition they have larger dividend yields than Commonplace Chartered, which is necessary to me as I’m aged over 50. This implies I’m trying to maximise my dividend earnings so I can maintain decreasing my working commitments.

That mentioned, given its robust outcomes, stable earnings progress prospects and important undervaluation, I believe Commonplace Chartered is nicely price different traders’ consideration.