FTSE 100 investment firm abrdn (LSE: ABDN) is down 23% since 20 July. The fall started in the run-up to its H1 results release on 8 August and has continued since.
In my view, the results did not merit such a valuation drop, and the company has much going for it.
For a start, it looks likely to maintain high yields and share buyback programmes for its shareholders. Last August it was dropped from the FTSE 100, following a 40% decline in its share price. And crucial to its quick return (in December) was its policy of ensuring excellent shareholder returns.
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To support these rewards, it will also have to continue to build out its core business, it seems to me.
Core business is strengthening
The focus of many analysts in the H1 results was the £4.4bn fall in assets under management (AUM). However, some people cutting back on their investments during the cost-of-living crisis is understandable to me.
This remains a risk for the shares, of course. Another risk is of a broader financial crisis at some point, which might make trading profits more difficult to generate.
In any event, the AUM loss was less than 1% of the total at the end of 2022. And it is still managing over £495bn.
Elsewhere in the results, there seemed much to support the idea of ongoing business growth. Net operating revenue rose 4% to £721m and adjusted operating profit increased 10% to £127m on last year.
These numbers were bolstered by the company’s recent efforts toward diversification. This included last March’s acquisition of interactive investor, which accounted for the net operating revenue increase in the H1 results.
In a similar vein, abrdn launched an investment platform with Virgin Money in early April. Customers will be able to invest through this in a Stocks and Shares ISA or a non-ISA account.
Broadening its sectoral presence further, abrdn announced on 21 June plans to acquire the healthcare funds of Tekla Capital Management. The deal includes four NYSE-listed healthcare and biotech thematic closed-end funds, totalling £2.6bn in AUM.
Stellar shareholder rewards
Despite its temporary FTSE 100 exile, a full-year dividend of 14.6p per share was paid, the same as in 2021. It also announced a £150m share buyback, which is near completion. Additionally, it restated an ongoing annual dividend target of 14.6p.
In the H1 results, it announced a 7.3p interim payout. It also announced a £150m extension to its previous buyback.
The yield on the shares now is just over 8%, based on its current share price of £1.82.
If this yield remained for over 10 years, a £10,000 investment now would make me £800 per year in passive income.
This return would not include further gains from any reinvestment of dividends or share price appreciation. On the flipside, it does not account for any tax liabilities or share price falls.
I already have holdings in the sector. If I did not, I would seriously think about buying abrdn shares, as they look a major bargain to me. I believe the extreme losses in the share price are unwarranted and will be reversed over time. I also expect it to keep paying healthy yields, given its recent experience of relegation from the FTSE 100.
