Aberdeen has had a tricky year, with the weakness in Asian and Emerging Markets affecting demand for its funds. The group saw net outflows of £34bn, leaving assets under management at year-end of £284bn (2014: £324bn). But the benefits of the acquisition of the Scottish Widows Investment Partners business, where integration savings have turned out better than expected, meant that profits rose marginally to £491.6m (2014: £490.3m).
A robust balance sheet, with year-end net cash of £568m allowed the group to increase the full year dividend by 8.3%, paying 19.5p for the full year (2014: 18.0p) with a final payment of 12.0p, to be paid on Feb 3 2016, to shareholders on the register on Jan 8 2016.
Aberdeen shares dropped around 3% in response to the continued outflows of funds.
CEO Martin Gilbert said "We continue to rebalance and diversify the business, to focus on managing our costs and to generate cash and this has helped to mitigate the impact of the outflows we've seen. We intend to continue with this strategy alongside ensuring we continue to deliver long term value for our clients and shareholders."
Aberdeen are testing investors' and clients' patience at the moment. Having prospered from strength in Asia and Emerging Markets when those regions were ablaze, Aberdeen is now suffering as investors shy away from these regions.
Fund outflows are part and parcel of asset management, from time to time. Nothing is fashionable for ever. Aberdeen's particular problem at the moment is that their broader investment style, of investing long term, with a focus on high quality stocks, chosen with a Value bias, is out of kilter with current market trends.
The Aberdeen investment process has worked well, for most of the time since the early nineteen nineties when it was first formulated, and we have a lot of sympathy with it. But in the meantime, funds are lagging their benchmarks and assets are walking out of the door.
Aberdeen's process is designed to avoid the star fund manager culture, and reduce their vulnerability to talent walking out of the door. The group is geographically diverse and increasingly spread across multiple asset classes.
At the time of writing the stock has a historic yield of 6.0% which is well above the market average. The stock market loves to sell asset managers who are having a tough time, because professional investors know how awful it can seem, when the numbers are going the wrong way. It is easy to forget just how well things can go when the reverse happens.
Aberdeen has been an excellent income stock for many years. Dividends per share have compounded at over 20% p.a. over the last decade. It would be foolish to expect this pace to continue through the current difficult patch, but as the group has shown, acquisitions like SWIP can smooth the impact of a weak period of investment performance.
With AuM of £284bn, Aberdeen is big, but not a giant. M&A is likely to be a big part of its future, for it is in the category of "buy, or be bought". If the share price continues to weaken, Aberdeen will be well aware that they themselves could start to appear on the radar screens of the industry's largest players.
We like Aberdeen, because it feels like one of those situations where either the business sorts itself out, over time, or somebody else will do it for them. The company has substantial net cash, and with the dividend yield where it is, investors are being handsomely paid to wait and see how it all works out. Please remember though, the dividend is not guaranteed.
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