If we invest in investment companies themselves, we expect them to make smaller profits when markets are bearish, don’t we? I certainly do. I buy for the long term to even out the ups and downs, so right now I reckon Abrdn (LSE: ABDN) shares look especially attractive.
In 2022, Abrdn shares are sliding. They dipped sharply when Russia invaded Ukraine. And they carried on downwards as inflation gathered pace.
Over the past 12 months, the share price has lost more than 40%. But I believe I smell a bargain here.
Interim
First-half accounts in August disappointed the market. Abrdn reported an 8% drop in fee-based revenue, down to £696m. Operating profit dropped 28% to £115m.
The company suffered a total net outflow of £35.9bn, but that figure is very much a one-off. It includes £24.4bn transferred out as Lloyds Banking Group has been moving its assets elsewhere. That is the final tranche though. Underlying net outflows came to £3.8bn.
These are big numbers, and I can understand why investors might get twitchy when they see them. But Abrdn still ended the half with £386bn in assets under management.
I think that helps put things into perspective. And, to me at least, it makes the market reaction look seriously overdone.
Bull market
When the next bull market comes along, I reckon investment managers like Abrdn should enjoy a new golden spell. And for me, that means rough times like today’s can provide great buying times. That is, providing a company is financially strong enough to see it through.
On that score, I have no worries at all. Abrdn has plenty of capital, with a regulatory surplus of £0.6bn. It’s commenced a £300m shareholder return with the launch of a £150m share buyback.
And Abrdn announced a 7.3p interim dividend. We’re looking at a forecast dividend yield of 9% for the full year.
Delayed progress
There are downsides, right? Well, yes. Abrdn has been on a refocusing programme since selling off its Standard Life insurance business. And economic conditions are currently making that a good bit harder.
At interim time, the company did say: “Current market uncertainty means our ambitions for revenue growth and improved cost/income ratio are likely to take longer than originally expected“.
Abrdn surely has to be at a disadvantage compared to rivals who were already on a steady track before the 2022 economic downturn hit. So I can see investors in the sector preferring to buy shares in other companies instead.
And that might well mean Abrdn shares are in for another year of weakness, or more.
Summary
But to summarise, this is what I think I’m seeing here:
- A cash-rich FTSE 100 company in a good long-term sector
- A healthy operating margin even during this down spell
- A big dividend yield and an unchanged dividend policy
Despite the short-term challenges, that makes Abrdn a buy for me.