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abrdn (LSE:ABDN), a major investment firm in the FTSE 100, has seen a significant decline in its value, with a loss of approximately 30% in just one month. The primary factor contributing to this decline was the release of the company’s first half results on 8 August.
The investment arm of the firm experienced a 66% decrease in profits, and there was a £4.4 billion decline in assets under management (AUM).
However, I’ve always been a contrarian investor. So this big drop in price caught my attention and I asked three questions.
1) Is the core business fundamentally strong?
2) What are the benefits for shareholders?
3) How does it compare to similar companies in the industry?
Does the business have a strong foundation?
It is undeniable that the first half results were generally disappointing. Additionally, the ongoing cost of living crisis poses a potential risk to stocks as individuals continue to reduce their investments.
Furthermore, there may come a time when a prevailing economic downturn occurs, leading to a widespread financial crisis that could pose challenges in generating trading profits.
In my opinion, there were also positive aspects in the results. For instance, the company’s AUM loss by the end of 2022 accounted for less than 1% of the total. Additionally, it continues to oversee a substantial amount of over £495bn.
Furthermore, the decline in investment revenue was compensated by the expansion of our advisory and individual businesses. Consequently, the net operating revenue for the first half of this year witnessed a 4% surge when compared to the corresponding period in the previous year. Additionally, the adjusted operating profit exhibited a 10% rise (£127 million) in comparison to the previous year.
The recent endeavors in diversification have yielded positive results. These positive outcomes can be attributed to the acquisition of Interactive Investor in March, which played a significant role in the growth of net operating revenue during the first half.
The planned acquisition of a healthcare fund by Tekla Capital Management appears to hold promise. The growth rate of per capita US healthcare spending has averaged 6% annually since the 1980s.
What do shareholder rewards entail?
A dividend payment of 14.6p per share was called for in 2022, mirroring the previous year’s amount. This payment has been promised as an ongoing target, similar to 2021.
In 2022, a share buyback worth £150m was announced, and it is now close to completion. Additionally, an additional £150m has been added to the share buyback program.
With a share price of £1.63, the stock’s current yield stands at an impressive 9%, making it one of the top performers in the FTSE 100. Investing £10,000 in these shares would generate a passive income of £900 for this year.
How does it measure up against its counterparts?
I am already invested in Aviva and Legal and General, both of which appear to be very reliable to me. These companies also provide attractive returns, with yields of 8.2% and 8.8% respectively. When compared to the FTSE 100’s trailing average yield of only 3.9%, all three companies are highly favorable options.
Aviva’s 2023 forecast trades at around 8.6 times the P/E valuation, while Legal & General’s 2023 forecast trades at approximately 8.7 times the P/E valuation.
The trading multiple for ABRDN appears to be significantly inflated at 15.6x, indicating a potential lack of profitability. This is especially concerning when compared to the trailing P/E ratio of 10.8 for the FTSE 100, which is projected to decrease further to 10.4 in the future.
Is it a good time to invest in this high-yielding LSE stock after a 32% drop this year?
Simon Watkins is affiliated with both Aviva plc and Legal & General Group plc. The Motley Fool UK does not hold any positions in the stocks mentioned. The author’s views on the companies mentioned in this article are their own and may differ from the official recommendations provided in our subscription services, such as Share Advisor, Hidden Winners, and Pro. At The Motley Fool, we believe that considering a diverse range of insights can enhance our skills as investors.
Motley Fool UK 2023