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Standard Life Aberdeen: Time to buy?
By Graeme Evans | Tue, 15th August 2017 - 12:48
With a double ratings upgrade and sharply higher target price, analysts at Barclays have been laying out the welcome mat for Standard Life Aberdeen (SLA) following its arrival in the diversified financials sector.
Their bullish stance on Europe's newly created second-largest fund manager reflects the potential benefits of £200 million in synergies from the £11 billion tie-up between Standard Life and Aberdeen Asset Management.
The Barclays team are also hopeful that the worst is over for outflows at Standard Life's flagship absolute returns fund and for Aberdeen in global emerging markets.
With the deal switching Standard Life from UK insurance to UK diversified financials, Barclays has boosted its rating from underweight to overweight and raised its price target by 49% to 510p. The update helped the new company's shares to continue their decent start to life since launching on Monday.
Barclays has based its forecasts on benchmarking Standard Life Aberdeen against six UK peers in the form of Ashmore (ASHM), Jupiter (JUP), Man (EMG), Schroders (SDR), Brewin Dolphin (BRW) and Rathbone Brothers (RAT).
The team has Standard Life Aberdeen trading at 12.5 times 2018 price/earnings (PE) ratio, compared with an average of 15.5 times for its peers. They also noted that Standard Life has the potential for additional valuation upside from the IPO of Indian joint ventures and the possible sale of its UK annuity book.
Barclays highlighted that the £200 million of deal synergies equate to about 11% of the combined company's cost base and 18% of pro-forma profits.
They said: "The incremental detail supplied around realisation timeline, split by area and the fact that dis-synergies to date appear minimal makes this total more convincing, in our opinion."
Standard Life's flagship GARS fund suffered £5.6 billion of outflows in the first half of the year, but Barclays said the second quarter was flat against the first and Lipper data suggested improving momentum as the quarter progressed.
The £23 billion fund, which aims to provide a positive investment performance whatever the market conditions, is the biggest of its kind in the UK but suffered a poor investment performance in 2016.
Meanwhile, Aberdeen's global emerging markets fund is up 16% over the year to the end of July and returned to positive inflows in the quarter to March.
Barclays noted that the new company will have better product diversification, particularly as Aberdeen has historically had too much focus on emerging markets and Asia Pacific equities.
Today's note is in contrast to recent comments from Panmure Gordon's Barrie Cornes, who signed off insurance coverage last week by expressing his scepticism about the benefits of the merger deal for Standard Life investors.
He said: "We maintain our cautious stance towards the union given our previously flagged concerns particularly concerning the management structure."
His comments reflect the combined entity's co-CEO structure, with Standard Life's chief executive Keith Skeoch working alongside Aberdeen counterpart Martin Gilbert, who in the space of 34 years turned the asset management business from a single investment trust into one worth £3.8 billion.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
|JUPITER FUND MANAGEMENT||586.50p||-1.01%|
|BREWIN DOLPHIN HOLDINGS||348.60p||0.61%|
|ABERDEEN ASSET MANAGEMENT||0.00||0.00%|
|STANDARD LIFE ABERDEEN||423.60p||-1.40%|
|All data 15min delayed as of: 07:28:20 23/11/17|