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More higher-margin work for Aberdeen

Aberdeen Asset Management is attracting more higher-margin work to add to an impressive investment performance
January 24, 2013

■ Assets under management are rising

■ Seeing net quarterly inflows

■ Strong demand for equities products

IC TIP: Buy at 385p

Aberdeen Asset Management (ADN) boosted funds under management by 3 per cent to £193.4bn in the last quarter of 2012, thanks to a net £1.1bn inflow of funds and an impressive £5.1bn market appreciation.

Most of this came from a strong equity performance, where assets rose from £100.7bn to £108.3bn in the quarter, after a £4.5bn market appreciation and £3.1bn of net inflows. Moreover, and while there were net outflows from all the other asset classes including fixed income and property, Aberdeen continued the trend of attracting funds into higher-margin pooled funds - investing in both equities and bonds. Outflows were principally from lower-margin segregated portfolios. In fact, net flows for the quarter added approximately £30m of annualised fee income.

Demand for equity products centred on the Asia Pacific region, although net inflows have continued at a higher rate than management feels comfortable with, and plans are in place to slow matters somewhat to ensure that performance isn't compromised. Emerging markets debt funds have also proved popular, with net inflows of £800m having helped to boosts assets by £1bn to £6.5bn.

Numis says...

Add. Rated on around 14 times 2013's forecast EPS of 27.3p, Aberdeen's shares remain attractive relative to those of most in the sector - although they're clearly more expensive than they were. We have upgraded our forecasts by around 5 per cent for 2013 and expect pre-tax profit of £419.8m, rising to £507.2m in 2014, with EPS of 33.2p. Decent earnings growth is expected to come through from continued moderate net inflows, and there's still room for a modest amount of revenue margin increase. Moreover, we expect to see a more generous dividend payout, rising from the 11.5p a share paid in 2012 to 15p in 2013 and 20p in 2014.

JPMorgan Cazenove says...

Overweight. Assets under management grew in line with our expectations, but net inflows into equities were substantially higher than our estimates - more than offsetting outflows elsewhere and boosting fee income. So, once again, we are increasing our estimates for 2013, from pre-tax profit of £423m to £432m, with EPS rising from 26.3p to 26.9p. Furthermore, having previously expected £4.4bn of equity inflows this year, we have increased this to £7bn, and increased our share price target to 498p. On our estimates, and adjusting for estimated surplus capital on the balance sheet, the shares are trading on 13.4 times 2013's expected earnings, which we think fails to recognise the continued strength of Aberdeen's operating performance