Standard Life hit by market weakness

The financial market weakness of recent weeks has already begun to hurt Standard Life (SL.). The life assurer reported that net fund inflows had fallen to nothing during the third quarter. However, helped by March's acquisition of Ignis Asset Management, total assets under management have risen 35 per cent in the year to date to £290bn. In fact, total net inflows in the first two quarters amounted to £4.3bn.

But, despite expecting market weakness to "impact the near-term pace of growth of assets and revenue", management also sounded a decidedly bullish note about longer-term prospects. That's significant because the group looks increasingly well-placed to take advantage of the government's pension reform agenda. While the Budget day decision to axe the compulsory purchase of annuities has seen the group's UK annuity sales slump by 55 per cent in the year to date, Standard Life is well positioned to benefit from growing demand for alternatives to annuities. Standard's drawdown product offering, for example, is seen by sector analysts as a market-leader and the group already boasts £10bn-worth of assets under management here. Standard has been busy grabbing a bigger share of the pension auto enrolment market, too; it now has 290,000 such customers this year, up from 137,500 a year earlier.

Deutsche Bank says...

Buy. Standard Life's update is better than expected in terms of assets under management, but below our forecasts in terms of net inflows. But, given the volatility of quarterly reporting, our instinct is not to extrapolate too much from the latter and we continue to see Standard Life as among the best positioned UK life assurers on any longer-term view - for which reason we retain our buy recommendation. But, reflecting recent market volatility, and the departure of the fund manager of the Ignis Absolute Return Global Bond Fund, we are lowering our forecasts by about 5 per cent. As a result, our sum-of-the-parts-based target price has been reduced by 2 per cent to 445p. We expect adjusted EPS of 21.4p for 2014 and a 16.95p dividend.

JPMorgan Cazenove...

Overweight. Standard Life reported a good set of results for the third quarter, with assets under management for both the group and for the Standard Life Investments arm coming in ahead of expectations. That's good news as higher levels here means higher earnings. Importantly, new inflows into the group's UK and corporate pension business continue to remain strong. This clearly reflects the benefits coming through from auto-enrolment in the UK group pension space as well as its stronger platform propositions. We reiterate our overweight stance and have set a price target on a sum-of-the-parts basis of 460p. Expect embedded value of 378p a share for 2014 and EPS of just under 24p.