■ Earnings upgrades
■ Positive net new business flows
■ Ongoing shift to higher-margin mandates
A strong performance in equity markets and a net inflow of funds helped to lift assets under management by 6 per cent since the start of the year to £184bn for
Moreover, new business flows were concentrated on higher-margin pooled funds, while outflows were limited to lower- margin strategies. And Aberdeen reckons that the ongoing trend of new business flows into higher-margin products in the first two months alone will add around £20m of annualised recurring fee income. Around half of all funds under management are invested in equities, and most of the inflows went into emerging market equities, although, in order to preserve the quality of the portfolio management, has taken steps to reduce the rate of inflows to more sustainable levels.
Peel Hunt says...
Buy. We had downgraded Aberdeen Asset Management's shares to a hold on the basis that much of the good news was already in the price, but since then the shares have fallen back and we are now upgrading the shares to a buy, with a price target of 280p. Aberdeen's balance sheet continues to be strengthened by organic cash generation, and the dividend yield of 4.2 per cent looks well supported. Expect adjusted pre-tax profits of £313m and EPS of 19.4p in the 12 months to September 2012, rising to £360m and 22.3p in 2013.
Espirito Santo Investment Bank says...
Neutral. We have upgraded our current year pre-tax profit estimates from £302m to £322m and lifted EPS forecasts from 18.7p to 19.9p. Assets under management are forecast to rise by 3 per cent by the September year-end, while the continued flow into higher-margin mandates justifies our higher profits forecast. Aberdeen should continue to benefit from asset flows into more higher-yielding equity and pooled mandates, while it is comforting to see a slowdown in net outflows from fixed-income mandates. However, with less than 10 per cent upside from the current price of 262p to our 285p target price, we have downgraded our recommendation to neutral.
Market gains in January and February are unlikely to be maintained, but Aberdeen Asset Management has a diverse investment portfolio and is attracting more funds into higher-margin mandates, notably into emerging markets. There is a decent dividend as well, but on 13 times forecast earnings, the good news is now factored in. Hold.
Last IC view: Good value, 214p, 5 Dec 2011