Asia-focused bank benefits from two upgrades in wake of new chief executive’s appointmentLeading shares have slipped back after Friday’s record high and the breaking of the 7000 barrier for the FTSE 100 for the first time.The index is down 15.01 points at 7007.50 after falling as low as 6996, as investors became a little more wary of the rally being driven by central bank policy decisions. There is also some caution ahead of the day’s meeting between Greek prime minister Alexis Tsipras and German chancellor Angela Merkel.Bill Winters’ recent appointment as Standard Chartered group chief executive puts the spotlight back on an unloved stock. Value can be unlocked by prioritising the 3Cs: Costs, Credit and Capital, helped by macro tailwinds or the 2Ms: Margins and Modimania. We make minor estimate adjustments: 2015 estimated dollar earnings per share down 2%, due to higher UK bank levy; 2016-17 estimates largely unchanged. Buy rating. Target price moves to 1300p (from 1250p) on higher dollar versus the pound.Although we were hesitant to change our view for the arrival of the new chief executive which has been a material positive, we believe that last week’s UK budget may lead the market to attach a higher probability of strategic actions to change domicile and unlock value. We believe normalised return on tangible equity for Standard Chartered in an alternative domicile such as Singapore/Hong Kong would be higher (around 12-13+%) than the current around 10-11% and Standard’s fully loaded CT1 target of 11-12% is in line with Asian bank requirements.We believe a re-domicile would be accretive despite our assumed $2.5bn one-off costs. While we expect Carnival’s first quarter update to demonstrate further bookings and pricing recovery coupled with more operational momentum in the core Carnival brand, we think recent significant moves in euro and pound foreign exchange could result in 2015 estimated earnings per share guidance being reduced around 8% and consensus coming back 5% to 10%. We remain positive on Carnival as we think the medium term earnings recovery potential remains intact, however with only 5% upside to our £34 price target we move our recommendation to hold. Continue reading...
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