Hold Aberdeen Asset Management as share buyback looms

The investment manager has been through a lot this year. Along the way, it has accumulated a sizeable cash pile

Martin Gilbert, founder shareholder and Chief Executive of Aberdeen Asset Management PLC
Chief executive Martin Gilbert Credit: Photo: Geoff Pugh

Aberdeen Asset Management
457 ½p+7.6p
Questor says Hold

Aberdeen Asset Management’s full-year results yesterday capped an action-packed few months for the company, at least by investment management standards.

Last year’s £650m acquisition of Scottish Widows Investment Partnership (SWIP) from Lloyds, which made Aberdeen Europe’s biggest asset manager, was followed by a worrying sell-off in emerging markets during the first half of the year and a “no” vote in September’s Scottish referendum.

Amid all this, one of the asset manager’s biggest investments, Standard Chartered, has continued to see its shares tumble; Aberdeen’s outspoken boss Martin Gilbert was even driven to publicly back management at the bank, amid questions about its chief executive’s future.

Shareholders, then, will be relieved that the company’s annual results contained few surprises. Aberdeen’s pre-tax profits fell 9pc, due to the acquisition of SWIP, but on an underlying basis they rose 2pc to a record £490.3m.

This came despite investors pulling £20.4bn out of the company in the year to September, with equity markets in Asia – where Aberdeen does a lot of business – tumbling as the US turned off the quantitative easing taps.

Mr Gilbert said outflows – the amount of money being taken out of Aberdeen funds – had started to tail off in the final three months of its financial year, and had continued to do so in October and November. Although customers moved money out, the acquisition of SWIP’s £135bn of funds meant Aberdeen’s assets under management swelled from £200.4bn a year ago to £324.4bn.

Mr Gilbert said the deal was progressing faster than expected, saving costs, and that the move had diversified the group, making it less susceptible to another Asian sell-off.

While all of this was a welcome sign of progress – and sent shares in Aberdeen up 1.7pc yesterday – there was one number in Monday’s results that particularly piqued Questor’s interest.

At the end of the year, Aberdeen was sitting on a cash pile of £653.9m – an increase of 53pc on a year ago.

Asset managers need to hold a financial cushion under European rules designed to protect them against downturns, but Aberdeen’s cash pile is almost double the £350m or so it requires – leaving a lot for it to play with.

Mr Gilbert upped the full-year dividend by a healthy 12.5pc, but this is small fry compared to what could come next. Although yesterday’s results announcement provided no mention of a share buyback, it is definitely an option, and Mr Gilbert told Questor that Aberdeen will make a decision in the first half of 2015.

Barring any dramatic market downturn, there appears to be little reason why the company should not return cash, and the possibility of one should provide support against any downturn in the coming months.

On the other hand, there is little about Aberdeen that makes Questor want to recommend buying it. Shares trade at 13 times earnings after a strong run since October’s wobble, and with the Federal Reserve’s money printing programme at an end, the type of growth rates that have seen them double in the last three years are unlikely to return.

Aberdeen has ridden out the last year well, and made excellent progress on a good acquisition. With plenty of cash to provide support, as well as a healthy dividend, this is one share worth hanging on to. Hold.