Standard Life Aberdeen Plc

Standard Life Aberdeen Plc (LON: SLA) is an FTSE 100 index investment management company. The Company has four reportable business segments: Investments, Advisory, Personal and Corporate/Strategic.

On 10 August 2021, the Company will release its H1 FY2021 results.

The next  dividend will be declared on 10-Aug-2021 with an ex-dividend date of 19-Aug-2021 (interim dividend).

Investment Rationale for Valuation – Buy at GBX 272.90

• SLA has recently committed itself to achieve a 50% reduction from 2018 levels in scope 1, 2 and 3 operational emissions by FY2025.
• By FY2023, SLA targets a cost/income ratio of ~70%. It also expects to achieve a high single-digit revenue growth till FY2023.
• SLA has an improved investment performance in FY2020. Its 66% of assets under management (AUM) is above the benchmark over three years.
• On the profitability front, SLA’s operating margin and net margin in FY2020 are above the respective industry medians of 33.5% and 20.3%, indicating higher revenue and better cost management than the industry.
• In the last two years, the stock has achieved a higher return than its benchmark FTSE 100 index. Given the prospects of SLA, this outperformance could continue in the future.
• From a technical standpoint, 20-Day EMA (GBX 271.60) is sustaining below the current market price and supporting the upside potential.

Key Risks

• SLA is exposed to counterparty default risk and also financial risk arising from having insufficient resources.
• Failure to deliver as per the contractual obligations could result in penalties as well as loss of goodwill.
• The Company intends to change its name. It could affect its brand value.
• Investor sentiment could be affected by market volatility.
• The proposed acquisition of Tritax may not achieve the desired synergies.

Recent News

Reduction in operational emissions: On 18 May 2021, SLA announced that it strived to achieve a 50% reduction from 2018 levels in scope 1, 2 and 3 operational emissions by FY2025.

New CEO of personal wealth: On 17 May 2021, SLA announced the appointment of Caroline Connellan as its new CEO of personal wealth.

Name Change: On 26 April 2021, SLA announced its intention to change its name to “Abrdn plc”. This rebranding process will start in the summer of 2021.

Financial Highlights (for the year ended 31 December 2020 (FY2020), as of 9 March 2021)

(Source: Company Website)

• Due to the impact of FY2019 outflows, SLA’s fee-based revenue was down to £1,425 million in FY2020 from £1,634 million in FY2019.
• On a positive note, cost control initiatives and ~£20 million of discretionary cost savings related to Covid-19 led to adjusted operating expenses down by 10%.
• Despite the cost savings, the lower revenue resulted in ~27.2% YoY decline in adjusted operating profit and ~6.2% YoY fall in adjusted diluted EPS.
• As a result of this reduced bottom line, the Board readjusted the total dividend for FY2020. The dividend per share was reduced ~32.4% YoY to GBX 14.6 per share.
• Driven by proceeds from its Indian stake sales, SLA achieved a strong capital surplus position of £2.3 billion.

One Year Share Price Chart

(Analysis done by Kalkine Group)

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

Conclusion

Driven by an extensive vaccination programme, the UK economy and consumer sentiment are coming back on track, which will benefit the investment management industry. The Company has a new strategy going into FY2021, which will bring revenue and earnings growth to its business. It will also complete a transformation programme which would reduce the cost further. SLA will follow a disciplined approach to capital allocation to generate shareholder returns. The Company had improved investment performance in FY2020, which could provide improved momentum in FY2021. The proposed acquisition of Tritax could enhance SLA’s private market capabilities. The stock made a 52-week low and high of GBX 205.80 and GBX 333.40, respectively.

Based on the decent prospects of the Company, its better profitability than the industry, its improved investment performance, strong capital surplus position, and support from valuation as done using the above method, we have given a “BUY” recommendation on Standard Life Aberdeen Plc at the current market price of GBX 272.90 (as on 28 May 2021 at 8.10 AM GMT), with a lower double-digit upside potential based on 1.01x Price/NTM Book (approx.) on FY21E book value per share (approx.). 

Beazley Plc

Beazley Plc (LON: BEZ) is an FTSE 250 index listed insurance company with global operations. It has insurance solutions across Life, Accident & Health, Marine, Political risks & contingency, Property, Reinsurance and Specialty lines.

On 23 July 2021, the Company will release its H1 FY2021 results.

Investment Rationale for Valuation – Buy at GBX 295.30

• Recently an independent chairman of BEZ bought additional Company shares, increasing his holdings by 20%. It indicates a strong belief in BEZ’s prospects.
• Reform in the solvency regulations for British insurers could free up additional capital and also reduce the insurance cost for policyholders. Hence, demand for insurance products could rise.
• New premium finance rules state that high interest could not be charged for customers who want to spread the cost of their insurance premiums over a few months. It would lower insurance costs and could drive the growth of insurance demand.
• In Q1 FY2021, BEZ’s renewal business premium rates rose by 16%, exceeding management’s expectation.
• BEZ has a capital surplus and could achieve strong growth by taking advantage of favourable market conditions.
• On the leverage front, the debt/equity ratio is consistently below the industry median of 0.37x since FY2018.
• From a technical standpoint, 14-day RSI (36.69) is moving towards the oversold zone and supporting the upside potential.

Key Risks

• Market volatility could lead to dampened investor sentiments, which could impact the business.
• The premium could fall due to lower disposable income driven by the pandemic.
• Due to its international operations, foreign exchange fluctuations could impact financial performance.
• The falling interest rates could put pressure on BEZ’s balance sheet in the near term.

Recent News

Insider Buying: On 25 May 2021, David Roberts, the Independent Chairman of the Company, increased his holding in BEZ by 20%.

Q1 FY2021 Trading Update (released on 13 May 2021)

(Source: LSE Website)

• Due to continued growth in executive risk, the Cyber & Executive risk division achieved premium growth of 19% YoY. Similarly, BEZ’s largest division, Specialty Lines, benefitted from favourable market conditions to achieve premium growth of 24% YoY.
• Rate growth in premiums was achieved in most of BEZ’s divisions, with overall growth meeting expectations in Q1 FY2021. Gross written premiums surged by 16% YoY to USD 971 million.
• This positive outcome led to an investment return of USD 27 million in Q1 FY2021 versus a loss of USD 55 million in Q1 FY2020.
• BEZ’s cash accretive business and the positive results in Q1 FY2021 resulted in investments and cash surging by 17% in Q1 FY2021.
• Driven by this, BEZ has a capital surplus, which is 15% to 25% above Lloyd's economic capital requirement (ECR).

One Year Share Price Chart

(Analysis done by Kalkine Group)

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

Conclusion

The insurance industry gets strong support from the UK government, with reform in the solvency regulations and new premium finance rules could drive the growth for insurance players. BEZ started FY2021 positively, fuelling its growth using its surplus capital. The rate momentum is far exceeding the management expectations. BEZ is well-positioned to take advantage of its capital surplus further to achieve strong growth, given the favourable market conditions. The stock made a 52-week low and high of GBX 287.60 and GBX 459.40, respectively.

Based on new reforms in the insurance industry, continued rate increases in most of BEZ’s divisions, the capital surplus position of the Company, its better leverage than the industry, and support from valuation as done using the above method, we have given a “BUY” recommendation on Beazley Plc at the current market price of GBX 295.30 (as on 28 May 2021 at 8.05 AM GMT), with a lower double-digit upside potential based on 1.70x Price/NTM Book (approx.) on FY21E book value per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*Dividend Yield may vary as per the stock price movement.

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