ii view: abrdn reports progress under growth plan

A dividend yield of over 4.5% and a 52% rise in profit. We assess prospects for this asset manager. 

First-half results to 30 June 2021

• Fee-based revenue up 7% to £755 million
• Adjusted operating profit up 52% to £160 million
• Assets under management administration of £532 billion, down from £535 billion
• Interim dividend unchanged at 7.3p per share
• Surplus capital position of £2.8 billion, up from £2.3 billion

Chief executive Stephen Bird said: “We have made a strong start to the year and our three-year growth plan. Our strategy is about focusing on client needs. The improved flows into our strategically important products and services show that we are answering client demand. The majority of the outflows that we are seeing are lower margin.

“We have made good progress in simplifying and focusing our business. The leadership team is now in place to drive the growth we seek through our strategic priorities. Our capital strength gives us the ability to invest in these priorities.

“We have a clarity of focus under our new brand and are better positioned to have impact at scale as a global business. We are at the beginning of the journey and we are moving at pace to build our new future.”

ii round-up:

Rebranded asset manager Abrdn (LSE:ABDN) reported rises in both revenue and profits despite seeing a net outflow of £5.6 billion from its funds. 

Fee-based revenue for the former Standard Life Aberdeen rose by 7% to £755 million and costs fell by 1%, helping adjusted operating profit to climb by 52% to £160 million. Total assets under management administration (AUMA) retreated to £532 billion from £535 billion at the year-end 2020. 

Abrdn’s share price rose marginally in UK trading, having risen by around 70% from pandemic-induced market lows in March 2020. Shares for fellow fund manager M&G (LSE:MNG) have doubled over that time. 

Under its relatively new chief executive, abrdn is pursuing a three-year growth plan. Its efficiency or costs to income ratio improved to 79% from a previous 85%. The company, previously formed by a 2017 merger between Standard Life and Aberdeen Asset Management, aims to reduce the cost-income ratio to 70% by the end of 2023.

The Edinburgh-headquartered group reported higher adjusted operating profit across all three of its businesses, including a small first-time profit for its Personal business.  

An interim dividend of 7.3p per share was declared, unchanged from last year. Earlier this year, abrdn cut or rebased its dividend, reducing the annual payment by a third. The dividend will remain unchanged going forward until covered at least one and a half times by adjusted capital generation. 

In February, abrdn rejigged a deal with SunLife owner Phoenix (LSE:PHNX), selling its Standard Life brand to the life assurer, while Phoenix re-committed to a 10-year strategic asset management partnership.

ii view:

Abrdn has operations in more than 40 locations across the world. It operates through the three arenas of investments, adviser and personal. Investments takes in its global asset management business.

Adviser encompasses its UK financial adviser business providing services through platforms to wealth managers and advisers. Its personal business combines its financial planning business 1825, with its digital direct-to-consumer services and discretionary fund management offering. 

An ageing population and moves by government to place a greater emphasis on individuals to save for their own retirements, provide for a favourable backdrop. Ultra-low interest rates have also seen savers seeking returns from cash alternatives such as equity-related products.

For investors, competition in the asset management arena remains intense. Low-cost index tracking products have put more traditional managers under pressure to compete and reduce fees. Improved investment performances can result in fund manager defections as demand remains high. 

That said, a new chief executive and updated strategy are aimed at rejuvenating group performance, with growth in operating profit offering earlier promise. A rebased dividend offers cash to invest and still leaves the shares sat on a yield of over 4.5%.

In all, and with the share price close to analysts' consensus estimate of fair value at 310p per share, investors may wish to wait for further signs of recovery before turning more optimistic. 

Positives: 

• Updated strategy 
• Targeting more cost savings

Negatives:

• Net fund outflows
• Intense competition including a number of banks

The average rating of stock market analysts:

'Strong hold'