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Abrdn - 2022 performance hit by market conditions

Full year net operating revenue fell 4% to £1.5bn, with the decline largely a result of adverse market movements in the Investment division.

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Full year net operating revenue fell 4% to £1.5bn, with the decline largely a result of adverse market movements in the Investment division. Underlying operating profit fell 19% to £263m.

There were net outflows of £37.9bn over the year, which includes the £24.4bn withdrawal from Lloyds Banking Group. Assets under management and administration ended the period down 8% to £500bn.

The board has recommended a full year dividend of 14.6p and has restated the ongoing annual target of 14.6p, until dividend payments are underpinned by stronger capital generation.

Abrdn has agreed to sell its discretionary fund management business for a total of £140m, the deal's expected to complete in the second half of 2023.

The shares rose 3.7% in early trading.

View the latest Abrdn share price and how to deal

Our view

2022 was a tricky year for Abrdn, and it won't be alone in posting results that reflect the impact of volatile markets which saw declines across a range of asset classes.

The group's doing what it can in trying to remove as many costs from the business as possible, but this isn't happening fast, or harshly, enough in our opinion.

Huge geopolitical uncertainty, recession fears and inflation all mean fund flows are challenging for the wider sector. But there are Abrdn-specific issues as its funds haven't proven a terribly popular option for investors. Assets have been walking out the door for years. Given its Environmental, Social and Governance (ESG) options currently lag peers, and demand for ESG investments is on the rise, it may be a more difficult ask to convince people to leave more money invested in its offerings.

Last year's acquisition of Interactive Investor (ii), which is one of the UK's biggest direct-to-consumer investment platforms, has beefed out exposure in the UK savings and wealth arena. Taking on an established platform is, in theory, a sensible and faster way to do this. And in the long run we think retail investors probably provide a relatively stable source of assets for the group. That's where ii slots in nicely.

The group's ability to fund the deal highlighted a core benefit of Abrdn. Asset management is a capital light business, meaning profits are free to be funnelled where they're needed.

We should also mention that the majority of the funds Abrdn manages have been able to deliver investment returns ahead of their benchmark - a key requirement if fund investors are to be tempted back. Offering funds across all the major investment categories means the group can cater to whatever happens to be flavour of the month.

We also have no immediate financial concerns - but investors should be aware the projected dividend isn't covered by earnings. The reserved approach to shareholder distributions is therefore sensible, the dividend set to remain at 14.6p per year until financial performance improves. But even at these levels it'll need to be funded with existing cash or disposal proceeds, some of which are earmarked for restructuring costs - so we wouldn't rule out another downgrade.

A bolstered direct-to-consumer offering, and improved proposition are all excellent developments. But we'd like to see Abrdn generating meaningful inflows, stronger fund performance and more progress on costs before saying the coast is clear.

The Share Research team is ceasing covering of Abrdn. This is the last update and house view HL will produce on this stock. You can still find out more about our thoughts on the Financials industry by signing up to our Share Insight email.

ABRDN key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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 disclosure for more information.

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Written by
Matt-Britzman
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 28th February 2023