Abrdn (LSE:ABDN) shares fell nearly 9% on Tuesday morning before recovering slightly. The asset manager posted a drop in first-half profit and revenue while noting challenges about the operating environment going forward.
The stock is down 42% over the past 12 months, which happens to be the same as Hargreaves Lansdown (LSE:HL) — a fellow financial services company that provides customers with a platform-cum-supermarket for stocks and funds.
And right now, I’m looking to sell some of my holdings in Abrdn, and buy more stocks in Hargreaves, as I contend that the latter has better growth prospects.
What’s in Abrdn’s earnings report?
It was a fairly bleak first-half report provided by Abrdn on Tuesday. Adjusted pre-tax profit fell to £99m from £163m in the same period a year ago. Meanwhile, adjusted operating profit slid 28% to £115m and fee-based revenue was down 8% to £696m.
The company swung to a pre-tax loss of £320m from a profit of £113m on an IFRS basis. Management cited market movements as the reason for its declining fortunes.
Total net outflows during the half were £35.9bn, up from £5.6bn a year earlier. The huge figure primarily reflected a £24.4bn withdrawal by Lloyds. Assets under management fell to £508bn from £542bn in the first half of 2021, due to the Lloyds withdrawal and a general downward trend in the market.
“We are continuing to deliver on our priorities and whilst the external market environment has worsened and it will likely take us longer to deliver our targets, it is the right strategy“, CEO Stephen Bird said in a statement.
Why I’m moving my money
I believe that more and more people are looking to take charge of their own investments, rather than leaving it to fund managers. In fact, there was an article in The Telegraph over the weekend highlighting that many fund managers were failing to beat the index benchmark.
And that’s why I see self-managed platforms as being the big winners here.
Last week (and as I had predicted) Hargreaves Lansdown reported that it was growing faster than many analysts had predicted. It recorded £5.5bn of net new business, alongside a 92,000 increase in active clients and revenue of £583m during H1.
Underlying profit before tax decreased 19% to £297.5m, but this was expected given the slowdown in trading since the pandemic. With restaurants, bars and shops open now, people have more things to do than just invest.
But this is in stark contrast to the current position that Abrdn finds itself in, with net outflows far into the billions.
Yes, Abrdn appears cheaper than Hargreaves Lansdown using the price-to-earnings metric (12 vs 18), but I think that’s an accurate reflection of the trajectories these two firms are on. Abrdn’s dividend yield (8%) had been double that of Hargreaves but it seems unsustainable as the coverage ratio declines.