Standard Life Aberdeen Plc – Operating with strong balance sheet

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.

Financial Highlights (H1 FY2020)


(Source: Company Website)

On 7 August 2020, the Company provided an interim result for the six months ended 30 June 2020, with improvement in net inflows. In H1 FY20, the Group’s 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. Led by the realisation of synergies and other efficiencies, the adjusted operating expenses decreased by 11% year-on-year to £601 million (H1 FY19: £673 million). IFRS loss before tax for H1 FY20 stood at £498 million, driven by goodwill and intangible asset impairment charges of £1,049 million. The Group witnessed a strong balance sheet, with an increase in surplus regulatory capital to £1.8 billion in H1 FY20. The Board has declared an interim dividend per share of 7.3 pence and remained the same from the same period last year. Excluding LBG tranche withdrawals, the redemptions reduced significantly to £38.1 billion (H1 FY19: £52.3 billion). On 30 June 2020, AUMA (assets under management and administration) stood at £511.8 billion, lower than £544.6 billion at year-end 2019, mainly reflecting the LBG tranche withdrawals.

Share Price Performance

 
1-Year Chart as of 10 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)
 

Standard Life Aberdeen Plc’s shares were closed at GBX 265.30 on 10 August 2020, up by 0.04% 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, shares were trading above the short-term support level of 100-day simple moving average price, which reflects an uptrend in the stock and carrying the potential to move up further.

Key Risks

The Company reported a decline in fee income in H1 FY20, and the management believes that market uncertainties presented by the pandemic is likely to affect the business for a while. 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. Furthermore, margin squeeze, increasing regulatory burden, macro-economic and political change, such as Brexit, poses key challenges to the sector.

Valuation Methodology



Conclusion

Despite the current crisis, the Company delivered a resilient performance. The Group has shown a strong capital position and balance sheet, which supports ongoing investment in the business and maintain the interim dividend of 7.3 pence per share. While the revenue outlook stays challenging for the industry. Further, the Company has robust investment performance in volatile markets with 68% of AUM (assets under management) above benchmark over three years. It also adopted innovative digital channels for customer and client engagement. In near-term, the Group is focused on financial discipline and taking several actions to prudently manage the cost base.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing market price of GBX 265.30 (as on 10 August 2020) and will recommend fresh buying at the right time.

Rightmove Plc – Declared no interim dividend

Rightmove Plc (LON: RMV) is a FTSE 100-listed property search platform provider in the UK.

Financial Highlights (H1 FY2020)


(Source: Company Website)

On 7 August 2020, the Company provided an unaudited result for the six months ended 30 June 2020, with more product innovation on track for delivery in 2020. In H1 FY20, the revenue was down by 34% year-on-year to £94.8 million (H1 FY19: £143.9 million), driven by a decline in all three segments. This is also reflecting the impact of the 75% discount support offered to the clients for the period of April 2020 to June 2020. The operating profit for H1 FY20 declined by 43% year-on-year to £61.7 million (H1 FY19: £108.2 million), with an operating margin of 65.1% (H1 FY19: 75.2%). The Group has a strong cash position and balance sheet, with the closing cash balance of £50.3 million (31 December 2019: £36.3 million). For H1 FY20, the average revenue per advertiser (ARPA) reduced by 34% year-on-year to £712 per month (H1 FY19: £1,077). Despite lockdown, the pace of product development accelerated, with 300 software releases (an increase of 10% from a year ago).

Share Price Performance

 
1-Year Chart as of 10 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Rightmove Plc’s shares were closed at GBX 621.40 on 10 August 2020, down by 1.46% against the last day closing price. Stock 52 week High and Low were GBX 710.60 and GBX 373.10, respectively.

From the technical standpoint, 14-day RSI is currently moving towards the overbought zone, which means there is a potential for a short-term correction in the stock price.

Key Risks

The Company derives almost all the revenue from the United Kingdom and is therefore dependent on the consumer confidence, macroeconomic and political conditions surrounding the UK housing market, which impacts on property transaction levels.Rightmove Plc being an online service provider, will have to invest heavily on the platform maintenance, any failure to innovate will reduce the customer base and financial stability as well. The Company operates in a competitive marketplace with low barriers to entry and attractive margins.

Conclusion

Since the customers started re-opening their businesses from 13 May 2020, the home hunter demand has been strong, supported by the recent announcement of temporary stamp duty holidays across the United Kingdom and changes in consumer needs. The demand for sales properties increased by 50% between 1 June 2020 and 31 July 2020 (against the same period in 2019), with rental demand being more than 20% higher. However, it is too early to say whether the strength of this encouraging momentum in the housing market will be maintained against the threat of wider economic slowdown and further lockdowns.  Furthermore, the Company is trading near a 52-week high, raising doubts at the upside potential at current prices.

Based on the headwinds faced by the Company, we have given a "WATCH" recommendation at the closing market price of GBX 621.40 (as on 10 August 2020), while any correction with support from few catalysts needs to be evaluated at a later stage.
 
 
*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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