Abrdn still cloudy

Abrdn’s (ABDN) half-year results presented investors with all the woes and problems of being a large, listed asset manager, but notably few solutions as to how to turn around its chronic underperformance. Apart from wretched market conditions affecting its investment performance, Abrdn is flummoxed by the simplest of business problems – when revenues fall, so do profits. The complicating factor for a large asset manager is that revenues are also linked to asset flows, and it is impossible to accurately predict how these might pan out.

The latest figures were hit by a £24.4bn redemption by Lloyds Banking Group. But even underlying institutional and wholesale net outflows were £2.5bn higher year on year. Overall assets under management in the investments business fell by 17 per cent to £386bn. Outflows and the market’s patchy performance also meant Abrdn took a hit to fee-based revenue, which was £546mn, compared with £613mn last time. Overall, costs to income rose to 86 per cent as falling revenues sent the operational gearing on top of the company’s fixed cost base into reverse.

This was at the same time as the company is trying to integrate the Interactive Investor (II) platform business acquired for £1.49bn at the end of last year. Management currently forecasts that it will book restructuring costs of £150mn this year, with the expectation that this will ultimately generate net savings by 2024 of £75mn. The performance of II has been the focus of a lot of interest. Management said that after a month of full integration II saw a 17 per cent increase in revenue and 47 per cent increase in adjusted operating profit, based on a 2021 run rate.

Analysts at Panmure Gordon articulated many of the concerns over Abrdn’s earnings resilience as markets become more unpredictable. Downgrades on the back of these results followed, but the shares are still rated at just under 21 times Panmure Gordon’s forecasts for earnings this year. Management seems to be pinning a lot of hope on Interactive Investor turning around its underlying performance, but a platform business can only do so much when set against the business’s wider issues. Sell.

Last IC View: Sell, 154p, 21 Jul 2022