Standard Life Aberdeen PLC – Robust investment performance in volatile markets.

Standard Life Aberdeen PLC is a FTSE 100-listed Investment Management Company. The Company is headquartered in Scotland and provides a broad range of assets management services in over 50 countries.

Recent News

20 August 2020: SLA purchased own 350,634 ordinary shares for the weighted average price per day of GBX 261.3204.

Interim Results (for the six months ended 30 June 2020)


(Source: Company Website)

As per the update released on 7 August 2020, the Company has delivered a resilient performance in H1 FY20. The fee-based revenue reduced by 13% year-on-year to £706 million (H1 FY19: £815 million), primarily reflecting 2019 outflows, the impact of LBG (Lloyds Banking Group) tranche withdrawals, and changes in client preferences to assets with lower fees. Meanwhile, operating expenses decreased by 11% year-on-year to £601 million (H1 FY19: £673 million) due to efficiencies and realisation of synergies. Further, it witnessed a strong balance sheet, with an increase in surplus regulatory capital to £1.8 billion in H1 FY20. As of 30 June 2020, the assets under management and administration (AUMA) stood at £511.8 billion, which was lower than the level reported at the end of FY19.

Share Price Performance

 
1-Year Chart as of 20 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Standard Life Aberdeen PLC’s shares were trading at GBX 247.90 on 20 August 2020 (before the market close at 12.16 PM GMT+1), down by 5.85% against the last day closing price. Stock 52 week High and Low were GBX 338.25 and GBX 170.30, respectively.

From the technical standpoint, 14-day RSI is currently in the oversold zone, which means there is a good potential for a short term rebound in the stock price.
 
Risk Assessments

The Covid-19 led lockdown has been significantly impacting the economic activities and the performance growth stocks. It is also impacting the value of the asset under management and administration. In the short-term, the UK Asset management industry is likely to remain under pressure due to increased market volatility in both equity and fixed-income securities.

Valuation Methodology



Conclusion
The Company has delivered a strong performance in volatile markets with 68% of the asset under management above benchmark over the past three years. During the uncertain revenue outlook, it will continue to focus on cost control and diversify the revenue streams. It has a well-balanced mix of channels and customers, strong geographic spread, continuous investment performance, and financial strength to remain resilient during the ongoing uncertainty.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Buy” recommendation on Standard Life Aberdeen PLC at the current price of GBX 247.90 (as on 20 August 2020, before the market close at 12.16 PM GMT+1), with lower double-digit upside potential based 1.0x NTM Price/Book (approx.) on FY20E Book Value Per Share (approx.).

 
XPS Pensions Group PLC – Resilient business to take advantage of favourable end-market dynamics.

FTSE All-Share listed XPS Pensions Group PLC is a United Kingdom-based holding Company, which is involved in pensions actuarial, consulting, and administration business. The Group is engaged in offering a variety of compliance and advisory services to across 1200 pension schemes.

On 26 November 2020, the Company is expected to announce H1 FY21 results.

Financial Highlights – FY20 (for the year ended 31 March 2020)


(Source: Company Website)

As per the full-year results released on 25 June 2020 for FY20, XPS witnessed a revenue growth of 9% year-on-year, primarily driven by new client wins and bolt-on acquisitions. Similarly, adjusted EBITDA was also 2% up year-on-year. During the FY20, the Company also achieved high cash conversion of 103% with net debt/adjusted EBITDA of 1.98x as of 31 March 2020. The Company proposed a final dividend of 4.3 pence, which brought the total dividend to 6.6 pence for FY20 (remained flat year-on-year). During the year, XPS completed the acquisition of Royal London and Trigon, which are providing wider strategic opportunities.

Share Price Performance

 
1-Year Chart as of 20 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

XPS Pensions Group PLC’s shares were trading at GBX 130.58 on 20 August 2020 (before the market close at 1.10 PM GMT+1), up by 6.16% against the last day closing price. Stock 52 week High and Low were GBX 159.00 and GBX 103.00, respectively.

From the technical standpoint, shares were trading well above the short-term support level of 10-day and 20-day simple moving average prices, which reflects an upward trend in the stock and carrying the potential to move up further.

Risk Assessments

The economic downturn can impact operational and financial performance as it leads to significant market volatility, currency changes, and interest rates. The Company could also face aggressive competitor pricing, major technological innovation, and change in consumer demand. Moreover, increasing remote operations during the pandemic can expose information security at risk from cyber-attacks.

Valuation Methodology


Conclusion

XPS has been performing resiliently despite the Covid-19 pandemic with a high degree of visibility on revenues as it expects demand for additional services to continue as pension trustees have been seeking advice and support throughout the pandemic. Moreover, it is expecting to gain further market share with new opportunities lying in Pensions Actuarial & Consulting domain. Overall, it is well-placed emerge strongly from the crisis and take advantage of the favourable end-market dynamics.

Over the past four years (FY16 – FY20), the Company’s revenue surged from GBP 51.77 million in FY16 to GBP 119.80 million in FY20. Compounded annual growth rate (CAGR) stood at 23.34 percent.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Speculative Buy” recommendation on XPS Pensions Group PLC at the current price of GBX 125.90 (as on 20 August 2020, before the market close at 11.16 AM GMT+1), with lower double-digit upside potential based 2.1x NTM Price/Book (approx.) on FY21E Book Value Per Share (approx.).
 
*All forecasted figures and Peer Information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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