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We are reinstating our PLUS rating for Aberdeen after placing the share under review on the day the company announced its very strong 2013 interim results (to end March). In the end, our initial reservations about the rate of net inflows into the group are not enough to invalidate our investment thesis based on margin accretion - though this improvement is set to slow relative to the past few quarters. The valuation remains consistent with the growth potential on offer.
Aberdeen has released a strong set of 2012 annual results. Operating profit came in 5% higher than expected, up 13% YoY. Strong fund performance has continued to attract new capital, especially in the more profitable equity funds, improving the group’s margins. This virtuous cycle has continued to operate since early October and is the basis for the share’s performance. The share remains reasonably priced given the company’s superior growth profile. PLUS rating reiterated.
Aberdeen has published very good results for H1 2012. Net operating income came out 15% higher than expectations and up by 13% over the year. The good performances of the funds continue to attract capital, particularly in the most profitable funds, thereby improving the group's margins. The prospects set out by the management are sufficiently encouraging that the very good performance of the share is likely to continue for some time. PLUS code reiterated.
Three years ago, Aberdeen embarked upon a strategic and commercial repositioning. This strategy involved an increase in “pooled” mandates to the detriment of their “segregated” counterparts. The gross margin (management commission/assets under management) is improving at the same time as the proportion or more profitable mandates is rising. This underlying improvement of profitability “absorbs” the negative impact of lower market prices on income and amplifies the positive effect of net capital inflows.
Last but not least, the group’s deleveraging program should end in 2012 and coincide with the resumption of a generous dividend payment policy.
Difficult financial markets did not affect Aberdeen seriously in 2011. The operating result stood at £302 million, 4% ahead of expectations. Despite net capital withdrawals of £1.7 billion, revenues and the operating margin benefited from the recycling of assets into products offering a better margin. Star funds (notably in Asia) continue to attract highly profitable capital. Last year’s favourable trend is therefore likely to be repeated. The share discount is low, but its potential above average. PLUS code confirmed.
In asset management, Aberdeen benefits from specific leverages which will help to widen its margins and hence its profitability. The replacement of products with low margins by more profitable products and a positive jaws effect between the growth of revenues and expenditure are generating wider structural margins. The share is currently attractive because it is trading at a slight discount against its competitors. PLUS code confirmed.
We are introducing Aberdeen AM with a PLUS code because the share is particularly well placed in our view to benefit from the gradual recovery of transaction volumes. The company also has specific leverages which will amplify the trend in the long run. The replacement of products with low margins by more profitable products and a positive jaws effect between the growth of revenues and expenses are generating structural margin expansion. The share is currently attractive because it is trading at a discount against its competitors.
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