StanChart surges on BofA Merrill Lynch upgrade

17th Jan 2017 08:35

(ShareCast News) - Standard Chartered got a boost on Tuesday as Bank of America Merrill Lynch upgraded the stock to 'buy' from 'neutral' and lifted the price target to 900p from 735p, saying the bank was progressing towards reasonable returns.Merill upped its 2018 pre-tax profit forecast by 18% to reflect higher returns on StanChart's $140bn excess deposits and equity and a modest uplift for higher fixed income and FX trading.BofA ML said it sees StanChart rebuilding profitability organically, with costs stable and income recovering to $17bn by 2020."This should offer an 8% return on tangible equity, re-geared to 9%," Merrill said, adding that this is still low, depressed by continued QE in Japan and rates still weighing on deposit earnings."We believe the market will support the group's independent strategy. However, in the event of disappointment, we believe the possibility of the end of the nine-year regulatory expansion and the new US administration open the potential for StanChart to seek a merger."BofA ML pointed out that StanChart's market value is below 10% of its largest peers and its multiple is now an outlier at 0.7x tangible book."We see goodwill inherent in StanChart's 56-country network; its US$ corporate operating deposit book; and its retail platform. Should the group conclude organic returns are capped, we believe an option it could pursue given the above could be to realise value through a sale."At 0857 GMT, the shares were up 6.5% to 771.30p.