The Abrdn (LSE:ABDN) share price is in recovery, and the juicy 8.6% yield on this FTSE 250 stock could be too good for me to turn down. Especially since the shares are 20% cheaper than they were one year ago.
2022 was a year to forget for Abrdn. It dropped out of the UK’s largest 100 companies by market cap, for one. But it has bounced back in an encouraging manner.
And City analysts are forecasting a much better performance this year. Swinging from a £550m loss, the company is projecting £250m of profit in February’s full-year results.
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Where it came from
British investors may not instinctively know the name Abrdn. It was called Standard Life for almost 200 years since being founded in 1825.
In 2017, a merger between two companies created Standard Life Aberdeen.
Then FTSE 100 insurer Phoenix Group bought the Standard Life brand, while Aberdeen kept hold of the wealth management arm.
Then it lost all of its vowels in a tragic branding accident.
To me, the name still looks like someone dropped a Scrabble board on the floor. But I’m willing to ignore this niggle because the underlying business looks to be a good value buy.
Where it’s going
Abrdn CEO Stephen Bird has made some promising moves. He sanctioned the £1.49bn buyout of retail investor platform Interactive Investor in 2022.
At the time, Interactive Investor managed £55bn of assets through Stocks and Shares ISAs and SIPPs.
And it currently controls 20% of the UK private investor market as the main rival of Hargreaves Lansdown and AJ Bell.
With investors getting younger and more savvy every year, direct, low-cost investing makes for good business.
Adding this company to its stable has been very good for Abrdn in general.
£1.4bn of cash in the bank also means — in my opinion — the company isn’t going bust any time soon.
Analysts expect a 20% boost to earnings in the upcoming results. And the 14.6p per share dividend, making an 8.6% yield, looks affordable enough for now.
What happens next
Because interest rates and inflation have hit multi-decade highs in the US and UK, a couple of things have happened.
Investors have rushed to plough cash into the fixed-income bond market. And Abrdn has suffered to some extent.
Stephen Bird noted in recent trading update that the company would cut 500 staff. That makes about 10% of its current workforce.
It would not be smart to ignore the challenges facing Abrdn. Fund managers globally are still suffering from uncertainty. Even Blackrock, with $10trn of assets under management, has been forced to shed jobs.
But if you invest like I do — with a 20-year time horizon — then blips like this tend to look pretty tame.
Upgrade on the horizon?
The world’s richest investment bank, JP Morgan, noted that cost-cutting would play well with investors. This “would likely lead to analyst upgrades to its earnings forecasts”, newswire service Reuters reported on 30 January.
And with the Bank of England expected to start cutting interest rates in May 2024? Yields on bonds will likely fall and start to look less attractive. This should boost Abrdn’s core business.
That means — to me — the potential of long-term gains for a little short-term pain. When I next have available cash to invest, I’ll be looking to open a position in Abrdn.
