Should Abrdn take the break-up option?

There was evidence in Abrdn’s (ABDN) results that, while the fund manager may lack vowels in key places, the process of turning around the struggling giant had made modest progress. A higher-than-expected level of savings – £102mn, compared with the £75mn management had forecast – plus a £15mn benefit from a revised Sipp distribution agreement with Phoenix (PHNX) meant the company achieved near-break-even point on reported total operating income of £1.4bn.

In contrast to the company's recent operational performance, this was heady stuff and the shares were initially marked higher on results day, albeit they later reversed course.

The good news is that the battle to stem the company’s perennial outflow seems to be on the verge of an armistice. While headline outflows rose an uncomfortable 35 per cent to £13.9bn, these reflected £6.9bn of transfers related to Abrdn’s sale of its discretionary fund management business and its US private markets arm. On the plus side was an improved £2.9bn of net flows for Interactive Investor, the expensively acquired share platform.

This was combined with positive market movements of £19.4bn, mainly through the efforts of the company’s insurance partners. Overall, this meant that total assets under management (AUM) fell by a modest 1 per cent to £495bn, lending the results a certain stability, without dispelling the impression that corporate actions continue to be vital. That includes the £300mn buyback completed during the year, which saw 161mn shares repurchased at an average price of 186p a share. Naturally, this helped to shore up earnings per share.

Abrdn’s problem is whether this progress will be enough to placate the market, or whether it needs to go further with a more radical plan and break up the company to realise a value that is greater than its current sum-of-parts calculation from broker Numis of 180p a share.

That is certainly what Numis analyst David McCann thinks: “We think the only clear investment case for owning the stock today would be if one were to assume that the status quo could meaningfully change and more radical action, such as a break-up of the group, were to happen.”

The adjusted price/earnings ratio of 13.5 times Numis’s forecasts for 2024 puts Abrdn broadly in line with the bulk of the asset management sector. With a prospective dividend yield of 9 per cent, there is now enough risk/reward to retire our prescient sell advice. Hold.  

Last IC view: Sell, 200p, 8 August 2023