■ Two acquisitions made in the third quarter
■ Net inflow of funds offset by negative market movements
■ Steps taken to control inflow into emerging market funds
Aberdeen Asset Management (AND) has become a victim of its own success, a recent trading statement confirmed, with the asset manager taking steps to restrict the capacity in its global emerging market equity fund in order to maintain quality levels. Even so, while gross new inflows slowed to £9.7bn in the third quarter to end June, this was still up from £8.8bn at the same stage last year.
True, heightened market turbulence in the third quarter prompted some investors to withdraw funds, but, despite this, net new business inflows in the first nine months were still ahead, albeit by a more modest £1bn. However, negative market movements left assets under management 1 per cent lower at £209.6bn. Notably, equity assets under management in the third quarter to the end of June fell from £124.3bn in the second quarter to £118bn, mainly on market volatility, while fixed income assets rose over the same period from £37.4bn to £38.8bn.
Two small acquisitions were made in the third quarter. Artio Global Investors added £5.9bn of fixed income and £800m of international assets under management, while SVG brought in £4.3bn private equity funds. As expected, there was a small net outflow of £300m from Artio following the acquisition, mainly in low-margin products.
Numis says…
Buy. Aberdeen Asset Management has largely confirmed that the current year will see the group building its surplus cash position, increasing the dividend materially and hopefully reducing shares outstanding through buybacks in 2014. As such, we believe there is room for the historic dividend payout ratio of around 50 per cent to rise to 60-70 per cent over the medium term. Aberdeen trades on 11 times 2014 forecast earnings, with scope for 20 per cent earnings growth per year and 30 per cent dividend growth, and the shares remain a top pick. Expect full-year pre-tax profits of £460m and EPS of 30.3p, up from £347.8m and 22.6p in 2012.
Shore Capital says…
Buy. We remain bullish on Aberdeen Asset Management, and still expect assets under management to end the financial year up from £187bn to £216bn. Due to a reduced tax charge, we forecast 2013 EPS of 28.5p, rising to 33.5p in 2014, giving a forward PE ratio of 11. Assuming a payout ratio of 60 per cent (giving dividend cover of 1.7 times) this translates into a dividend per share of 17p for 2013 and 19.5p for 2014. That's a prospective yield of 5.2 per cent. Moreover, these figures compare favourably with 2014 forecast sector averages of a 3.6 per cent yield and 13.8 times earnings, which leaves Aberdeen trading at a discount to the sector, while delivering a higher yield - something we feel is not justified.
