Investment Column: StanChart is worth holding on to despite the banking turmoil

PZ Cussons; Premier Farnell

Our view: Hold

Share price: 1,434.5p (+20.5p)

While much of the banking sector remains mired in gloom, the emerging markets bank Standard Chartered rolls along. In a trading statement yesterday the bank trimmed its growth forecast a little, owing to the depreciation of Asian currencies against the dollar. But investors should take heart from the fact that it is still doing rather well.

Margins are edging up, bad debts are coming down and StanChart is hiring while others in the sector are busy handing our pink slips. Income growth is running ahead of costs so the company is likely to report yet another double-digit increase in profits early next year. In fact, the lender increased profits throughout the worst of the recent downturn. Some call it the world's best bank, a label that is not wholly unjustified, in our view.

But the fact that it is a bank remains a problem. Bank bosses often appear to run them not so much in the interests of shareholders as in the interests of a small circle of richly rewarded staff.

This is a fundamental issue for investors and it is by no means clear that StanChart is in the vanguard of reform (although you could argue that, given its exposure to parts of the world that are growing rapidly, it doesn't need to take steps in this direction with the same urgency as some of its more Western-centric peers).

A more concrete worry comes from the European sovereign debt crisis. In the worst scenario, the debt storm could hit Asian economies pretty hard; and that would no doubt have an impact on StanChart. Besides, there are fears about Asian companies scaling back investment plans in the current, high-risk environment.

So the bank will have to work very hard to justify its lofty rating. It trades on 1.8 times the "book" value of its existing business. Most UK banks trade at chunky discounts. Even HSBC is cheaper. The earnings multiple (11.6 times forecast full year) is less stretched, and the prospective yield (3.2 per cent) remains acceptable.

Last year we said take profits with the shares at £19.21. Don't expect spectacular growth from here, but those who still have StanChart should probably hold. Although it faces risks, it is far less exposed to the current crisis that some of its peers.

PZ Cussons

Our view: Sell

Share price: 308.7p (-36p)

PZ Cussons, the maker of soap and beauty products, endured a rough ride after rattling investors with a profit warning yesterday.

The group – which owns Imperial Leather soap, St Tropez tanning products and Sanctuary body scrubs – blamed difficult retail trading conditions in its large Australian market. It also suffered in the smaller markets of Greece, thanks to the economy; Thailand, from the floods; and the Middle East, owing to the political unrest.

Of these, Asia was the biggest contributor to the group's poor performance. But these difficulties weren't the only ones. PZ Cussons also said its profits for the half year to 30 November had fallen below expectations because of the continued high cost of raw materials and adverse exchange rate movements in Nigeria, where the Naira currency has slipped against Sterling.

As a result, its house broker, Panmure Gordon, has pencilled in a 13 per cent fall in PZ Cussons's half-year profits to £40.1m and slashed its full-year earnings per share forecast by 8 per cent to 16.3p. And though the share price is down sharply since the start of the year, the stock trades on a lofty forward earnings multiple of nearly 19.

Furthermore, its exposure to the UK consumer and its hefty reliance on oil-based products, with oil prices remaining stubbornly high, makes us even more cautious about PZ Cussons, though we note its full-year profits are expected to be ahead of last year.

Premier Farnell

Our view: Hold

Share price: 175.5p (-2.3p)

We decided to avoid Premier Farnell when we looked at the distributor of electrical products back in the summer. And on the face of it, yesterday's third-quarter results did little to inspire confidence (though admittedly, the company is lapping some tough comparables). Although the figures were in line with expectations, the fact remains that that many of the headline figures were less than cheery.

Adjusted pre-tax profits were down 7 per cent in the third quarter of this year against the performance in the third quarter of last year. Various other metrics were also weaker.

Still, the fact that Premier met expectations is to its credit. It also boasts a robust balance sheet and a healthy yield of 6 per cent. And as we said earlier, comparisons with last year are tough, as then it was boosted by the recovery in its end markets. All this, and the fact that the stock is down sharply since our last note, means we would hold on to the shares that remain in our portfolio. But it's too early to buy.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
tv'Jingle Bells' quickstep on Strictly Come Dancing's Christmas Special
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Life and Style
fashion
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there