Thursday tips round-up: Standard Chartered, Pennon

14th Aug 2014 08:31

Standard Chartered is under increased scrutiny from investors now that a decade-long run of record profits has just ended. During the past financial crisis the lender offered a rather unique value proposition. Its only links to the west were its UK listing and London headquarters. Furthermore, it has an extensive footprint in the booming east. Now the tables have turned. Developed markets are coming back. Hence, investors are now analysing the details of its past profit growth and the outlook for growth prospects in the east. As regards the former, loans to large Asian conglomerates provided much of the impetus for its expanding earnings during a long time. However, provisions - especially in India and Singapore - are lower than some feel comfortable with. As well, given the rising risk weightings being applied to assets tied to other financial institutions the lender may face an additional drag on earnings. Fully 40% of StanChart's risk-weighted assets are to other financial firms, quadruple that of other British lenders and double that of HSBC. Possible changes in its top management are also a growing area of uncertainty. Sell, says The Times's Tempus. Things may be looking up for Pennon. The utility group is close to finalising work on five new waste incinerators that would more than double cash profits over the coming three years, to more than £100m - marking a successful turn-around of its landfill and recycling subsidiary. That unit, called Viridor, was hit by higher 'green' taxes and heightened competition. A slowdown in Chinese demand for recycled material also impacted negatively upon it. For its part, South West Water, its main unit, is performing well and now has regulatory certainty for the next five years, even if after a price freeze. Nevertheless, at 21 times' earnings the stock is expensive so it may be wisest to wait until the incinerators are up and running. 'Hold', says The Daily Telegraph.Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB