Standard Life Aberdeen PLC (LON: SLA) – Targeting to exit 2023 at cost/income ratio of around 70%.

Standard Life Aberdeen PLC is an FTSE 100 listed Investment management company. Going forward, the Company will have four reportable business segments – Investments, Adviser, Personal, and Corporate/Strategic. The Investments division comprises the global asset management business, “Adviser” business deals with UK financial adviser business which provides services to wealth managers and advisers. Furthermore, “Personal” business combines the financial planning business, while “Corporate/Strategic” comprises certain corporate costs and businesses held for sale. The Company is headquartered in Scotland.

The Annual General Meeting of SLA is scheduled to take place on 18 May 2021.

(Source: Company presentation)

Recent trend of dividend payments

(Source: LSE, chart created by Kalkine Group)

SLA remained committed to delivering sustainable dividend over the medium term. The Company will pay a final dividend of 7.30 pence per share for FY20 on 25 May 2021, while the ex-dividend date was 15 April 2021. SLA had already paid an interim dividend of 7.30 pence per share, totalling around £159 million on 29 September 2020. Thus, the total FY20 dividend remained around 14.6 pence per share, totalling approximately £313 million, while it was 21.6 pence per share, totalling nearly £493 million during FY19.

Growth Prospects and Risk Assessment

The key strategy of SLA would be to drive client-led growth across three business segments. Moreover, SLA had identified several strategic priorities such as Growth in Asia, UK adviser and consumer markets, Solutions and Responsible investing. SLA would aim to simplify its business and currently taking all required steps as it announced exits from Nordics real estate and Indonesia and the proposed sale of Parmenion. SLA had strengthened its acquisition pipeline demonstrated by the proposed acquisition of Tritax, which would enhance the private market capabilities. Also, SLA had reached an agreement to enhance strategic partnership with the largest client, Phoenix, during February 2021.

(Source: Company presentation)

The rebranding activity is in the process to bring the business under one single brand.

SLA is undergoing several significant risks, such as poor strategic decision making resulting in failure to meet client expectations. SLA is exposed to the risk of third parties as it may result in failure to deliver in line with the contractual obligations.  Moreover, the ongoing market volatility arising from economic uncertainties can dampen investor sentiments. SLA is also having the financial risk of having insufficient resources, suffering losses from adverse markets or the failure or default of counterparties. 

After understanding growth prospects and risk assessments, we will analyse some key fundamental and shareholders statistics of Standard Life Aberdeen PLC.

Recent Developments

On 26 April 2021, SLA had announced its intention to change the name to “Abrdn PLC". The rebranding roll-out process would begin in summer 2021 and expected to take place before the release of the Company’s interim results in August 2021.

Financial & Operational Highlights (for the period ended 31 December 2020, as of 09 March 2021)

 (Source: Company Result)

• The Company had reported fee-based revenue of £1,425 million during FY20 as compared to £1,634 million for FY19, illustrating the impact of 2019 outflows.
• Moreover, SLA had witnessed improved investment performance during FY20 with around 66% of AUM above benchmark over three years, while it was around 60% during FY19.
• The Company had achieved a strong surplus capital position of £2.3 billion during FY20, while it was £1.7 billion during FY19. Furthermore, it was benefitted from Indian stake sales.
• The net outflows had shown significant reduction to £3.1 billion excluding LBG tranche withdrawals because of significant improvement in Institutional and Wholesale net flows.
• SLA had shown a 10% decline in adjusted operating expenses from £1,333 million during FY19 to £1,206 million for FY20 due to efficient cost management.

Financial Ratios (FY20)

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters)

On 30 April 2021, at 09:32 AM GMT, SLA’s shares were trading at GBX 274.60, up by 0.18% from the previous day closing price. Stock 52-week High and Low were GBX 333.40 and GBX 202.80, respectively.

SLA's prices are staining above an upward sloping trendline for more than a year and forming a series of higher highs and higher lows. On a weekly chart, prices are getting support from the 50-period SMA and sustaining above the same for the past two weeks, indicating an upside reversal in the prices. However, trading below 21-period SMA acting as a resistance zone. The momentum indicator RSI (14-period) is trading at ~45.32 levels, indicating a sideways to a positive direction for the stock.

In the last ten years, SLA’s stock price has delivered a positive return of ~22.43%; and it has outperformed the FTSE All-Share Financial index with a return of around 21.52% and the FTSE 100 index with a return of about 16.63%.

Valuation Methodology: Price/Book Value Approach (NTM) (Illustrative)

Business Outlook Scenario

The Company had witnessed improved growth momentum towards the second half of 2020, illustrated by the improved investment performance. SLA had formulated a new strategy focused on returning the business towards revenue and earnings growth. Moreover, it would emphasise delivering sustainable returns to shareholders in the form of dividends. However, the Company highlighted that it would show revenue decline in the near term but remained confident that it would achieve high single-digit revenue growth over the next three years till 2023. Furthermore, SLA would also focus on growth strategies for each business segment, with the completion of the transformation program would drive cost reduction in the near term. SLA had targeted to reach a cost/income ratio of around 70% by the end of 2023. SLA would also focus on stabilisation of revenue yield in the near term by meeting client preferences for higher-yielding assets. Overall, SLA would adopt a disciplined approach with a primary focus on generating sustainable returns for shareholders.

(Source: Company presentation)

Considering the simplified business model, consistent dividend payments, recent acquisition benefits, strong capital surplus position, robust financial performance, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Standard Life Aberdeen at the current price of GBX 274.60 (as on 30 April 2021 at 09:32 AM GMT), with lower-double digit upside potential based on 1.05x Price/NTM Book (approx.) on FY21E book value per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

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