Standard Life Aberdeen’s (SLA) upcoming sale of the “capital-intensive” insurance business to Phoenix (PHNX) may be a case of giving with one hand and taking with the other. As flagged in May, around £1.75bn of proceeds from the sale will be returned to shareholders, with management accelerating an initial £175m share buyback to commence within a few days of publication of this result. However, it also makes the group even more heavily reliant on its investment management operations – a business that suffered net outflows of £19.2bn during the first half, up from £16.4bn at the 2017 half year.
The Wrap and Elevate UK retail savings platforms may have gained £2.5bn in net new business, but group net outflows still rose to £16.6bn from £12.4bn. The Aberdeen Standard investment arm suffered net outflows across all asset classes, including a net loss of £5.3bn in business from the flagship Global Absolute Returns Strategy (GARS).
However, it wasn't all bad news. Management is targeting £250m in savings from the merger of Aberdeen and Standard Life and efficiency gains of more than £100m from operating a simplified business model. Some of those benefits are already coming through, with the cost-to-income ratio declining to 69.4 per cent from 70.6 per cent. Management aims to reduce this to 60 per cent in the medium term.
Analysts at Numis expect adjusted pre-tax profit of £913m for the December 2018 year-end, giving EPS of 26.1p (from £1.04bn and 28.9p in 2017).
|STANDARD LIFE ABERDEEN (SLA)|
|ORD PRICE:||318.2p||MARKET VALUE:||£9.48bn|
|TOUCH:||318.2-318.3p||12-MONTH HIGH:||449p||LOW: 301p|
|DIVIDEND YIELD:||6.8%||PE RATIO:||11|
|NET ASSET VALUE:||277p*||Assets under administration:||£610bn|
|Half-year to 30 Jun||Turnover (£bn)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
|*Includes intangible assets of £4.4bn, or 148p a share|
The shares are trading near a 12-month low, but closed the day up 5 per cent on the release of these results. That leaves them trading at 12 times forward earnings, a discount to the broader asset management sector. However, the continued high level of outflows – which show no sign of abating – is a concern and one that justifies that discount. Hold.
Last IC View: Hold, 382.4p, 26 Feb 2018