A 12pc yield or an 80pc return? This stock presents a tough conundrum

Telegraph

2 hours ago

Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest
Such can be the joys of value-oriented, contrarian investing. We have a capital return (on paper) of more than 80pc in Standard Chartered shares in just over a year, and the emerging-markets focused bank continues to deliver good earnings growth, higher dividends and more share buybacks, as evidenced by last week's strong interim results.
We now need to decide what to do next, especially as the valuation is no longer quite so compelling on an earnings basis, but there remains a strong income angle, which merits patient support.
Standard Chartered started to report quarterly profits a decade ago, and the second-quarter result this year was the best three-month period of the lot, as pre-tax income rose 44pc year-on-year to $2.4bn (£1.8bn). Robust inflows into the wealth management business drove fee income there and low loan impairments were both notable features, as was a $238m gain on the sale of a start-up Indian e-commerce operation that it had backed.
Such a strong performance enabled chief executive Bill Winters and the board to sanction a 37pc increase in the interim dividend and launch a second share buyback for the year – this time $1.5bn – to take the total for the year to date to $3.4bn. It also meant that net asset value (Nav), or book value, per share rose by a sixth year-on-year to $16.80. At the prevailing exchange rate on 30 June that equates to £12.26 a share.
The shares trade at a 1.1x premium to that book value figure, rather than the deep discount of which we took advantage in spring 2024. This is why the shares are less enticingly valued than before. But book value should continue to grow and if Standard Chartered can continue to churn out double-digit returns on equity, then 1x Nav could become a floor for the share price, rather than a ceiling.
That view justifies retaining a position, even if the further the shares move above Nav the more tempting it becomes to realise some of the paper gains. The dividends and share buyback schemes should be enough to keep income seekers interested, though, as combined they equate to more than 12pc of the bank's current stock market capitalisation.
Such a total 'cash yield' easily beats inflation, Bank of England base rates or Gilt yield.
Questor says: hold
Ticker: STAN
Last share price: 1368.5p
Update: Croda International
Sometimes value investing can involve looking for trouble quite intentionally, and we may have found it in the case of Croda. Shares in the chemicals specialist tumbled after last week's first-half results, even if the headline numbers featured nothing unduly untoward. We shall just have to hang on for now, in the view that the challenges facing the business are cyclical rather than structural.
The jury is out on that issue, all the same. Croda's move to launch extra cost savings suggests management is not entirely comfortable with what they see, and a 2pc increase in the interim dividend is not a ringing endorsement of the outlook, even if it maintains a phenomenal growth streak in the shareholder distribution. Analysts are busily downgrading their earnings forecasts yet again thanks to worries over energy costs and regulation in Europe and competition from Asian rivals.
Croda trades on more than 20 forward earnings for this year, but that could be deceptive if the profit figure proves to be a tough one. The Yorkshire company now needs to show it can start to expand profit margins once more.
Questor says: hold
Ticker: CRDA
Latest share price: £25.90
Update: Just Group
Bingo. So many UK financials' stocks look cheap, perhaps due to concerns over the wider economy, regulation or both, and that does not mean just the banks. Life insurance expert Just Group is a case in point, and a 220p-a-share bid from Brookfield Wealth Solutions means we should be able to cash out of the stock having trebled our money, including dividends.
Even that offer price, which represents a 78pc premium to the undisturbed level at which the shares traded before the announcement, represents a near 15pc discount to Just's last reported Nav per share figure of 254p. The shares' failure to go above the offer price suggests the market does not expect a higher counter bid, perhaps because management is recommending BWS' £2.4bn approach, but we can now afford to be patient and wait for the deal to close in the first half of 2026.
Questor: hold
Ticker: JUST
Latest share price: £2.10