5th Jan 2023 18:37
(Alliance News) - A large Middle Eastern bank decided against a takeover offer for Standard Chartered PLC, but Shore Capital maintains the interest is proof that there's "plenty of upside" to its current valuation.
First Abu Dhabi Bank PJSC on Thursday said it is no longer evaluating a takeover offer for FTSE 100-listed lender.
Shares in Standard Chartered rose about 20% following reports of the takeover offer, and closed the day up 6.7% at 704.39 pence.
First Abu Dhabi Bank is a bank in the United Arab Emirates.
On Thursday, First Abu Dhabi Bank said it had previously been at the very early stages of evaluating a possible offer for Standard Chartered, but is no longer doing so.
The release seems to have come in response to a story run by Bloomberg earlier in the day, about how the Middle East's largest bank had been assessing Standard Chartered for over six months.
To Shore Capital research analyst Gary Greenwood, the fact that the bank had become a takeover target was no surprise.
"Standard Chartered has been rumoured as a bid target for longer than this analyst has covered
the sector (almost 23 years). Historically, it has been linked with takeovers by western banks (both
UK and US) and Chinese banks," Greenwood said.
Before the financial crash in 2008, the main barrier to an acquisition for potential western purchasers was that Standard Chartered was "simply too expensive", he said.
"Although in recent years this valuation differential has been eroded and the stock now looks to us somewhat undervalued," he added.
A takeover by a western or Chinese bank would also have undermined the perceived regional independence of Standard Chartered.
This could have been "damaging" to its franchise, Greenwood said, with respect to politics or regulation.
"A potential takeover by a Middle Eastern bank with deep pockets, therefore, represents a different angle of attack," he considered.
"As such, we do not know the reasons why the approach has not gotten beyond the initial stages of evaluation. In our view the valuation is attractive, so it may be just the difficulty of overcoming the political and regulatory hurdles associated with buying a large, complex bank."
Despite the spike in the share price, Shore Capital maintains there is "plenty of upside", and holds the stock at 'buy' with a fair value of 900p.
This is equivalent to around 0.9 times its tangible net asset value.
"However, we think an acquirer would likely need to pay over 1.0 times to consummate a deal, which would value the shares at more than 1,050p," Greenwood concluded.
By Elizabeth Winter, Alliance News senior markets reporter
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