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Standard Life Aberdeen - Cash still heading out the door

Nicholas Hyett | 7 August 2018 | A A A
Standard Life Aberdeen - Cash still heading out the door

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Assets under management and administration (AUMA) continued to fall in the first half of the year, with operating income lower as a result. This was partially offset by reduced operating expenses, although adjusted profit before tax still fell 8.3% to £478m.

Standard Life Aberdeen (SLA) announced an interim dividend of 7.3p per share, up 4.3%. It's also due to start repurchasing £175m of shares in the coming days, as a £1.75bn capital return scheme kicks off.

The shares ticked up 1.8% in early trading.

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Our view

The merger of Standard Life and Aberdeen Asset Management was all about scale. Scale creates opportunities for cost savings, offsetting the pressure on fees from regulatory scrutiny and passive investment funds that have impacted margins across the wider industry.

Early signs aren't bad. Expected synergies have been increased by 25% and a diversified distribution network also seems to be bearing fruit, with the financial adviser platforms performing well despite tough conditions in the institutional market.

That hasn't been enough to stop the money walking out the door though.

Bulking up hasn't all been good news either. Lloyds is looking to withdraw the £109bn Scottish Widows mandate, previously managed by Aberdeen, over conflicts of interest with the expanded group. The portfolio represents almost 18% of SLA's total AUM, and while low margins mean it only accounts for something like 5% of revenues, it's still a significant loss.

The agreement to sell the remaining life business to Phoenix will go some way to rectifying the damage. It also completes the transformation from life insurer to fully fledged asset manager.

The deal provides a £2.3bn cash injection and frees up capital currently restricted by regulatory requirements. SLA's also picking up a 20% stake in Phoenix, which should keep the assets under SLA's management with potential to add more from elsewhere in the Phoenix portfolio as well.

Going forwards it's vital that the group stems the outflows that plagued both Aberdeen and Standard Life quarter after quarter. Rising markets have generally AUMA moving in the right direction, but outflows of 5% a year will really hurt if stock markets take a turn for the worse.

Fortunately, we feel SLA has the tools to turn things around.

Investment performance remains reasonable and the combined group is less reliant on one or two investment areas than either of its predecessors. That should make it less exposed to investment fashions. The adviser platforms are performing well too and Aberdeen has historically excelled selling to institutions, providing multiple routes to market.

In the meantime, cost savings should support profits, and the combined group aims to grow its dividend over time. Analyst forecasts have the group offering a prospective yield of 7.3%.

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Half Year Results

AUMA fell 2.6% over the first half to £610.1bn, with the drop split between net outflows of £16.6bn and £4.6bn from negative market movements. The group's retail platforms: Wrap, Elevate and Parmenion, all continue to grow steadily - with net inflows of £3.1bn and total AUA of £61bn.

Lower AUMA, and a slight decline in the average charge on funds, saw operating income fall 7.2% to £966m. Operating expenses fell 3.7% to £712m, which includes £40m of a planned £250m in cost savings from the merger of Aberdeen and Standard Life.

Aberdeen launched 20 new funds during the year.

The group finished the year with cash of £1bn, down from £1.2bn last year.

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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.

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