abrdn (LSE:ABDN) shares have rallied since October’s nadir, up 31%. The share price performance in the fourth quarter benefitted from the execution of the second tranche of its buyback, and some might say conditions on the horizon are improving.
So let’s take a closer look at this stock, and explore what’s next for firm.
3-year investment
If I had invested £1,000 three years ago, today I’d have £660, plus dividends. The dividends would have been fairly sizeable — the yield currently sits at 7% — but, overall, this would have been a disappointing investment.
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There are several reasons for the negative performance.
The global investment company and asset manager was formed five years ago when Aberdeen Asset Management combined with Standard Life in a deal that merged two bastions of the Scottish financial sector.
However, Standard Life Aberdeen has struggled with a considerable outflow of funds, including from a long-standing mandate with Lloyds‘ Scottish Widows arm. In 2022, we saw the final £24.4bn tranche of Lloyds’ withdrawal.
As such, in H1 of 2022, abrdn’s total net outflows amounted to a huge £35.9bn, up from £5.6bn a year earlier.
Reasons to buy
The global investment company is among the smallest FTSE 100 stocks by market-cap, but at least it’s back among the top 100 firms.
One could certainly argue that abrdn doesn’t look expensive right now. To start, the firm has a price-to-earnings ratio of 6.7.
It’s worth noting that in its half-year results, abrdn said its investments in FTSE 100 insurer Phoenix and Indian financial group HDFC were worth £1.7bn.
When you include cash reserves of 0.6, it means the wealth management platform, including Interactive Investor, and fund business are being valued at just £1.7bn.
That’s not a lot for a business that generates over £300m in operating profit.
Caution
However, it’s not all rosy. There are concerns that it may struggle to undertake a turnaround of its core investments unit in current market conditions. Moreover, succession planning for a new CFO increases uncertainty. According to reports, current CFO Stephanie Bruce is planning to step down.
Past performance isn’t indicative of future performance. However, it’s hard to avoid the disappointing results since the firm’s creation. abrdn’s assets under management fell from £608bn to £508bn between the start of 2018 and June 2022. And, as such, cash generation has been inconsistent.
Since taking over as CEO in 2020, Stephen Bird has attempted to streamline the group’s fund management operations. However, three years of underperformance has led to questions being raised about his own performance. Some have described his masterplan as a relegation rather than a reset.
Poor performance has also made the vowel-shy brand a target for short-sellers. Some analysts are now proposing a break up of the two-century-old business.
Amid all of this, I’ve recently decided to sell my abrdn shares. I think there are better places to put my money.
