The Standard Life Aberdeen (LSE: SLA) share price climbed 15% in September, smashing the FTSE 100‘s gain of 3%. It was not only the biggest riser of the Footsie’s asset managers, but also the top performer of all financial stocks in the blue-chip index.
In this article, I’ll discuss why its shares soared, and give my view on its current valuation and prospects.
Strong bounce-back
SLA had been one of the worst performers in August (a 17% fall versus a market decline of 5%), following underwhelming half-year results, so the strong bounce-back in September came as a welcome relief for investors.
There wasn’t actually much in the way of news from the company during the month. A mundane announcement of a new non-executive director joining the board was about it. All was quiet on the broker research and recommendations front too. And yet the shares headed resolutely upwards from August’s closing price of 249.3p to 285.8p on 30 September.
Share buyback
I think the rise was partly due to a general improvement in sentiment across the market, and partly due to a £200m share buyback programme SLA had announced on 16 August. Its shares made a bit of headway in the latter half of August, and gained momentum through September, as it bought back and cancelled over 21m shares, reducing its number of shares in issue by 0.9%.
Such programmes tend to be supportive of the share price, because each remaining share is worth that little bit more, representing a slightly bigger slice of ownership of the business.
Whirlwind October
The first few days of October have been rather more eventful. On Wednesday, SLA announced that Martin Gilbert — group vice-chairman and co-founder of Aberdeen Asset Management 36 years ago — will be stepping down next year.
Meanwhile, the company’s continuing share buybacks provided no protection in the face of the broad stock market sell-off this week. The shares finished yesterday at 269.3p, down 5.8% from Monday, compared with a 4.5% drop in the FTSE 100.
Valuation
SLA trades at 14.4 times this year’s forecast earnings per share of 18.75p. The company has seen persistent fund outflows since Standard Life merged with Aberdeen in 2017, so the earnings multiple doesn’t seem particularly generous. A prospective yield of 8% on a targeted maintained dividend of 21.6p is generous, but you’ll note that the payout is uncovered by earnings.
The disposal of the group’s insurance business, and the freeing-up of regulatory capital that backed it, means SLA’s balance sheet can support the dividend — as well as share buybacks — for some time, if it chooses to continue doing so.
Uncertainty
However, I do wonder whether the aforementioned Martin Gilbert is ‘retiring’ or ‘being retired’, and whether chairman Sir Douglas Flint (ex-HSBC), who only joined the company this year, could be embarking on a boardroom shake-up of this underperforming business.
There’s been quite an exodus of personnel since Standard Life and Aberdeen, which had rather different cultures, merged. And I note recent news that co-head of multi-manager strategies James Millard has now left the business.
On balance, in the absence of evidence of stability at the company and the stemming of fund outflows, I’m inclined to see SLA as a stock to avoid.
