What's new:
■ Fixed income redemptions slowing
■ Switch to higher margin work
■ Bank debt repaid
A further slowing in fixed-income redemptions helped Aberdeen Asset Management record a £600m net inflow of funds in July and August, according to a recent trading update. Moreover, revenue margins on inflows continue to be higher than on the outflows. The subsequent profit boost has allowed the investment manager to repay all of its bank debt from operating cash flow.
Net new business flows for the nine months to end-June saw £1.2bn of redemptions on the fixed income side, but that was offset by £2.1bn of equity inflows - leaving assets under management at £164.5bn. That had improved to £168.8bn by end-August. Demand for hedge fund of funds and multi-asset funds has been particularly strong, while property-related funds have performed strongly thanks to a rally in UK property assets.
Management reckons that investor appetite has improved recently, with gross new business flows in July and August totalling £6.4bn. This brings the total for the first 11 months of the financial year up to £42.7bn; well ahead of the £19.1bn for the whole of the previous year. And a further £2.1bn of new mandates have been awarded, but not yet funded.
Numis Securities says...
Add. Aberdeen Asset Management's shares look inexpensive, trading on 10 times 2011's forecast earnings - shares in rival Henderson trade on on 12 times, while and Schroders' are rated on 14 times. The group has delivered a decent investment performance across the business, with a notable reduction in fixed-income outflows. What's more, assets under management are currently running ahead of our expectations as a result of stronger than expected equity inflows. Expect pre-tax profits of £204.1m for 2010 and EPS of 12.8p, rising in 2011 to £257.6m and 15.9p in 2011.
Evolution Securities says...
Buy. The group has enjoyed strong equity inflows, while the fixed income side has slowly been transformed - the first quarter's £6bn has slowed to a £1.2bn outflow. Moreover, the shift towards higher margin work means that operating margins for the full-year are likely to be in line with the 33.5 per cent achieved in the first half. Meanwhile, net debt, which stood at £20m at the half-year, has now been repaid. Yet the shares trade at a discount to those of other asset managers. Pre-tax profits for 2010 of £184m are currently expected, giving EPS of 12p - but expect upgrades.
