I’m on the hunt for the UK’s most exciting value stock, and asset manager abrdn (LSE: ABN) fulfils much of the criteria.
The FTSE 250-listed company has been through hell over the last seven years. Yet the worst may finally be over.
abrdn is the ungainly progeny of the 2017 merger between fund managers Standard Life and Aberdeen Asset Management. Their combined value was originally £11bn. Today, abrdn is worth a meagre £2.63bn. Talk about a burning platform.
Will the abrdn share price ever stop falling?
The two groups turned out to have huge fund overlap and had to cull 100 of them. It also stumbled into a legal fight with Lloyds, which pulled £25bn of its mandate.
Both parties brought their problems. Aberdeen was an emerging markets specialist, but China went into meltdown. Standard Life’s Global Absolute Return Strategies (GARS) was the UK’s most popular fund worth £24bn, but that folded last year. I won’t go into the misguided abrdn rebrand. That would be cruel.
The group dropped out of the FTSE 100 in August 2022 and again last summer. Today, it remains in the FTSE 250. Its shares peaked at 499p in May 2015 but now trade at 147p, down 70%. And they continue to struggle, falling another 6.97% over the last year.
I’ve just spotted its name on a list of top 10 most shorted UK stocks, with six fund managers betting it has further to fall. Together, they hold 5.63% of the total share count.
Who would invest in a stock like this? Well I’m tempted. The punishment beating has gone on long enough. It got one thing right, buying the interactive investor trading platform, which widens its offering.
Best of all, it offers a stunning yield of 9.89%. That’s a brilliant rate of income, providing it holds.
And it delivered some good news on 6 August, with half-year revenues and profits beating analyst estimates. CEO Jason Windsor, talked up the group’s “encouraging start” but let’s not get too excited. Adjusted operating profits rose just 1% to £128m. Revenues fell 7% to £667m.
Dividend to die for
Cost-cutting helped abrdn deliver a £187m profit before tax. Last year, it lost £169m. Net fund flows rose by £600m. A stock market recovery would help.
The abrdn yield is fab but that’s down to the ailing share price. Dividends have been frozen at 14.6p per share for the last four years. This chart shows how they’ve flatlined.
Chart by TradingView
I’m worried that abrdn’s reputation may deter brokers from placing business with the group. Plus I expected the shares to be cheaper, although today’s trailing P/E of 10.41 times earnings is hardly demanding.
One thing occurs. abrdn isn’t the only financial services company offering a mighty yield. FTSE 100 asset managers Legal & General Group and M&G are also around the 9% mark. Their shares have avoided meltdown, but hardly flown. This is a struggling sector.
Since I hold both L&G and M&G, buying abrdn would only replicate the risks and rewards. Otherwise, I’d fill my boots. Abrdn might just be bargain of the decade.
