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Standard Life - Solid AUA growth

Nicholas Hyett | 24 February 2017 | A A A
Standard Life - Solid AUA growth

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Standard Life saw revenue grow 5% in 2016, with operating profits up 9%. The group has announced a final dividend of 13.35p, taking the full year dividend to 19.82p, up 8% on 2015.

The shares were broadly flat following the announcement.

Our View

Standard Life has transformed itself over the last fifteen years or so from a traditional life insurer to a fee-based asset manager. The group now has two main business lines - Standard Life Investments (SLI), which offers a range of active and passively managed funds; and a UK savings and pensions business. The latter includes the Wrap platform for financial advisers and the group's corporate pensions proposition, both of which provide convenient platforms to channel money into SLI.

Standard Life is benefiting from some pretty favourable tailwinds. These include the on-going shift from defined benefit to defined contribution pension schemes, and auto-enrolment (by 2018 all UK employers will need to provide a qualifying workplace pension for eligible employees).

The group's annuity sales were sharply lower in 2015, as a result of pension reforms. However, those changes could benefit the group in the long run, by increasing demand for alternative pension arrangements such as income drawdown. This should allow the company to retain more assets on its platform when customers come to retirement.

The group continues to actively diversify away from it's solely UK heritage. In particular SLI is increasingly targeting global institutional investors, while increased investment in its Indian operations looks like an attempt to replicate some of Prudential's success in offering financial services to rapidly growing emerging markets.

As Standard Life increasingly focuses on asset management it will become more exposed to market performance, with any falls feeding through to AUM and thus fee income. For now though the company is enjoying the recent surge in equity prices, and that is supporting a yield of 5.9% for 2017, rising to 6.3% by 2018, on current analyst estimates provided by Bloomberg.

Full Year Results:

Standard Life saw Assets Under Administration (AUA) increase 16% over the year to finish at £357.1bn. However, this was driven by market performance, with the group experiencing modest net outflows of 2.6bn - largely as a result of mature books of business.

The group's growth channels delivered a strong performance, with AUM up 20%. Within that Institutional and Wholesale AUM grew 11%, while Workplace and Retail AUA grew 33% (boosted by the acquisition of Elevate). Fee based revenue from growth channels grew 10% to £1.2bn (versus £1.7bn total fee revenue).

The group's cost to income ratio fell one percentage point to 62%, with the group continuing to target a rate below 60%.

The group has set aside £175m for customer redress relating to non-advised annuity sales.

Unless otherwise stated, all estimated figures, including prospective dividend yields, are taken from a consensus of analyst forecasts compiled by Thomson Reuters. These estimates should not be taken as a reliable indicator of future performance.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.