Broker snap: StanChart should raise capital, says Numis

13th Dec 2013 16:09

Standard Chartered needs to raise equity, according to Numis Securities, which lowered its target price for the emerging markets-focused lender on Friday.The broker cut its target to 1,340p, which it says assumes a 50% probability of a capital raise."Management's focus on capital intensity is absolutely right, but it should in our view be augmented by a capital raising," said Analyst Mike Trippitt.StanChart's equity cash flow will be positive in 2014 and beyond. However, after a dividend payout, Trippitt forecasts negative net capital generation. As such, the core tier-1 capital ratio is expected to fall from 11.2% at the end of this year to 10.4% in 2014 and 10.2% in 2015.Trippitt believes that a £2.9bn capital raise - which would represent less than 10% of StanChart's market capitalisation (£31bn) - would add 1.2 percentage points to the bank's core tier-1 capital ratio. He said that a 10% placing discount to the current market price would still be at a 14% premium to estimated 2013 tangible net asset value (TNAV), meaning that the capital raise would be broadly neutral to TNAV."It is three years since Standard Chartered's previous rights issue (October 2010). The rights issue was designed to position Standard Chartered in capital terms 'above the fray'. "Since then, regulatory requirements have increased significantly. We believe the current rating still allows Standard Chartered to raise capital efficiently and augment its ongoing focus on capital intensity."The broker retained its 'hold' rating for the stock.BC