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
Life and Style
Fans line up at the AVNs, straining to capture a photo of their favourite star
life Tim Walker asks how much longer it can flesh out an existence
Life and Style
Every minute of every day, Twitter is awash with anger as we seek to let these organisations know precisely what we think of them
techWhen it comes to vitriol, no one on attracts our ire more than big businesses offering bad service
News
Professor David Nutt wants to change the way gravely ill patients are treated in Britain
people Why does a former Government tsar believe that mind-altering drugs have a place on prescription?
News
Norway’s ‘The Nordland Line – Minute by Minute, Season by Season’ continues the trend of slow TV
television
Arts and Entertainment
art
Sport
Jonny Evans has pleaded not guilty to an FA charge for spitting at Papiss Cisse
football
Life and Style
Kate Moss will make a cameo appearance in David Walliams' The Boy in the Dress
fashion
News
The image released by the Salvation Army, using 'The Dress'
news
Sport
Liverpool defender Kolo Toure
football Defender could make history in the FA Cup, but African Cup of Nations win means he's already content
ebooks
ebooksA special investigation by Andy McSmith
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

Recruitment Genius: Customer Relations Officer

£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Jemma Gent: Project Coordinator

£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable