Despite rising 66% since April, the aberdeen (LSE: ABDN) share price is still a whopping 67% lower than back in 2015. But with net flows beginning to stabilise and a huge investment programme in place to improve the client experience, I’m turning increasingly bullish on its long-term outlook.
H1 results
Today, 30 July, the company released a solid, if not spectacular, set of results. Adjusted operating profit at interactive investor (ii) soared 25% to £69m; the Investments operation was flat. But its Adviser division remained weak, with profits down 35%. For the group as a whole, profit was unchanged.
It’s the Adviser business that continues to concern me most. Over the last five years, independent financial advisers (IFAs) have been selling out of its funds on behalf of their clients.
But there is light at the end of the tunnel. For the first six months, net outflows totalled £900m. That is still way too high, but nevertheless is 55% better than it was at the same period last year.
The company recently introduced a new pricing strategy to enhance its competitiveness. Lower prices should entice more IFAs to recommend its funds.
Although the business measures customer satisfaction via a traditional net promoter score metric, as far as I am concerned the only thing that matters to IFAs is fund performance. Although improving across the portfolio as a whole, only 30% of equity-type funds managed to beat a stated benchmark. I don’t expect that poor metric to improve dramatically soon.
Individual investors
In stark contrast, ii, its direct-to-consumer platform, continues to go from strength to strength. I believe that the market continues to underestimate the strategic importance of this division for its future profitability.
Net flows were up £4bn, with a 27% increase in customers with a SIPP. Assets under management administration rose 9% to £85bn, and are now nearly a third higher than two years ago. The platform’s flat pricing model clearly resonates with clients.
The asset manager continues to invest heavily in ii, with new features constantly being added. ii Community is one such innovation. A social trading platform, akin to Reddit forums, it enables people to discuss stocks, compare portfolios and get inspiration. Members now total 22,000. In today’s social media-driven markets, individual investors are becoming increasingly important participants.
Dividend sustainability
Back in April, when I first swooped on the stock, the dividend yield sat at an enormous 11.6%. Many would have doubted whether that could be sustained. I continue to believe it can. The yield today is 7.1%. I don’t know of many businesses that offer that kind of yield and yet still have bags of growth potential.
The business has already made it clear that it won’t increase dividend per share until it is covered at least 1.5 times by adjusted capital generation. Last year it sat at 1.18 times, so any increase is unlikely any time soon.
The wealth industry is changing fast. Inter-generational wealth transfer and pension reforms open up a huge set of opportunities. aberdeen is uniquely placed to capture the entire spectrum from high net worth to individual investors. That’s why I recently added to my position again this month and will likely continue to do so in the near future.
