FTSE 100 investment firm abrdn (LSE: ABDN) has lost around a third of its value in about a month. This was mainly due to the H1 results released on 8 August.
Profits at the firm’s investment arm dropped 66%. And there was a £4.4bn fall in assets under management (AUM).
However, I have always been something of a contrarian investor. So a big price drop like this catches my attention and I ask three questions.
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First, is the fundamental business sound? Second, what are the shareholder rewards? Third, how does it stack up against its peers?
Is the fundamental business sound?
There is no getting away from the fact that the H1 results overall were poor. And people cutting back on their investments during the cost-of-living crisis remains a risk for the shares.
Another is a broader financial crisis at some point, which might make trading profits more difficult to generate.
But there were good bits in the results too, as far as I am concerned. The company’s AUM loss was less than 1% of the total at the end of 2022, for instance. And it is still managing over £495bn.
Also, lower revenue from investments was offset by growth from the Adviser and Personal businesses. Overall, net operating revenue rose 4% in H1 compared to the same period last year. Adjusted operating profit also increased – by 10% (to £127m) on last year.
Recent efforts at diversification also appear to be starting to pay off. This included last March’s acquisition of interactive investor, which accounted for the net operating revenue increase in H1.
Promising as well, I think, is the planned acquisition of the healthcare funds of Tekla Capital Management. US healthcare expenditure per capita has grown at a compound annual rate of 6% since the 1980s.
What are the shareholder rewards?
In 2022, a full-year dividend of 14.6p per share was paid. This was the same as in 2021, and the same again has been pledged as an ongoing target.
A £150m share buyback was also announced in 2022, which is near completion. And this has been extended by another £150m.
The stock’s yield is now 9%, based on a share price of £1.63 — among the best in the FTSE 100. If I bought £10,000 of the shares now, I would make £900 this year in passive income.
How does it compare to peers?
I already have holdings in Aviva, and Legal & General. Both look very solid to me, and both pay very high yields of 8.2%, and 8.8%, respectively. All three firms compare favourably to the current average trailing yield of the FTSE 100 of just 3.9%.
In P/E valuations terms, the 2023 forecast for Aviva is around 8.6 times, and for Legal & General about 8.7 times.
abrdn is trading around 15.6 times, which I think looks unjustifiably high, suggesting to me that there is little scope currently for gains. Even more so, as the trailing P/E ratio for the FTSE 100 is now about 10.8 (and forward it is around 10.4).
