Standard Life Aberdeen (LSE: SLA), Aviva, Prudential. They’ve all taken a hit from the Covid-19 stock market crash. Aviva has done the worst of the three — and can you guess which one I hold?
Meanwhile, the Standard Life share price has risen from the early depths of the slump. But it’s still down around 20% so far in 2020.
That’s pretty much bang on the FTSE 100 average, so it’s not a sector-specific crunch. And the insurance companies are doing better than the banks. So should we buy insurance shares, and is the Standard Life share price itself a bargain?
Let me start off with a personal word of caution. I like the insurance sector, and have done for decades. In fact, it’s possibly the sector I’ve done best from over the course of my investing career. Now, markets tend to price stocks for the short term, and that’s where my caution comes in.
If you’re worried about where your stock prices are going to go this year, next year, or even the next five years, I’d keep away from insurance stocks. If you don’t like cyclical volatility, I’d keep away from insurance. But do you have an investing horizon of a decade or more? Do you like to take a contrarian approach? Then I think the insurance sector is seriously worth considering for a portion of your retirement fund.
Financially strong first half
What about the Standard Life share price itself? A first-half update on 7 August revealed figures impacted by the Covid-19 crisis, as expected. But insurance companies are set up to expect and survive financial hard times. And on the liquidity front, Standard Life Aberdeen is looking solid to me.
Chief Executive Keith Skeoch said that, despite the pandemic pressures, “our foundations are firm, we have a strong balance sheet which enables us to both invest in our business and maintain our interim dividend of 7.3p.” Maintaining the interim dividend at this stage is a welcome result, especially when income from the financial sector has been severely hit.
The company also revealed a “strong balance sheet including surplus regulatory capital of £1.8bn, up compared with £1.7bn at FY 2019.“
During the period, Standard life attracted net inflows (excluding Lloyds Banking Group tranche withdrawals of £24.9bn) — of a modest £0.1bn, but still positive. Redemptions fell by 27%.
Standard Life share price cheap?
The restructuring of the firm after the merger of the old Standard Life and Aberdeen Asset Management has caused some uncertainty in recent years. Partly as a result of that, the Standard Life share price is down around 50% over the past five years. But with a new CEO in the person of Stephen Bird set to take over, investors are becoming increasingly optimistic that we’ll see some restructuring and acquisitions.
Whether the company will maintain its dividends in the short term if it needs cash to expand is an open question. But I think the next couple of years could see significant progress. And I reckon the currently depressed Standard Life share price makes it a time to buy.