abrdn PLC

abrdn PLC (LON: ABDN) is an FTSE 100 listed global asset management entity that offers solutions like fixed-income, emerging market equities, real estate, and multi-asset solutions.

Investment Rationale for Valuation – Buy at GBX 181.25

• Decent Fundamentals: The company adopted a disciplined capital management approach in FY21 and reported an uptick in fee-based revenue by 6% to £1,515 million in FY21, compared to FY20.
• Strong Investment Performance: The 3 -year investment performance reflected at 67% in FY21, an increase from 66% in FY20.
• Uptick in AUMA: Assets under management and administration grew by 1% to £542 billion in FY21, driven by positive market movements and the impact of corporate actions.
• Technical Indicator: The price of the stock is hovering near the lower Bollinger band with 14-day RSI level of ~40.40.  

Key Risks

• Outflow Risk: The Group is faced with the risk of continued fund outflows by investors, resulting in an adverse impact on fee income and profitability.  
• Macro Risk: Equity and debt markets have been very volatile in the recent past owing to geopolitical issues, COVID concerns, and record inflation levels.

FY21 Financial Highlights (for the year ended 31 December 2021, released on 01 March 2022)

(Source: Company Website)

• Improvement in Operating Leverage: In FY21 cost/income ratio improved to 79%, compared to 85% reported in FY20. This has been achieved due to a focused cost management approach.
• Operating Profit: Adjusted operating profit grew by a robust 47% to £323 million in FY21, compared to FY20.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

*Peers: Peers considered are Frenkel Topping Group PLC, Hargreaves Lansdown PLC and IP Group PLC.

*All selected peers are LSE-listed Companies from the Financials sector.  

Conclusion

The company seems to be optimistic about its prospects after delivering improved performance in FY21. It plans to exit 2023 with a cost/income ratio of around 70%.

Based on the decent fundamentals, operating leverage, optimistic outlook and support from the valuation as done using the above method, we have given a “Buy” recommendation on abrdn PLC at the current market price of GBX 181.25 (as of 20 May 2022, 08:11 AM GMT+1) with lower double-digit upside potential based on 17.21x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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