The abrdn share price is falling. I’d buy while it’s cheap

The abrdn share price was the biggest FTSE 100 faller at one stage Wednesday morning. Here’s why I rate it a long-term income buy.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Bus waiting in front of the London Stock Exchange on a sunny day.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

I love buying top quality shares when I think they look cheap. And that’s exactly what I think about the abrdn (LSE: ABDN) share price right now.

abrdn shares have been falling all year. And on Wednesday morning, they dropped another 4% in response to the latest UK inflation data.

The investment management business is going through a tough patch. And first-half results for abrdn didn’t look pretty.

Fee-based revenue fell by 8% compared to the same period last year. When share prices are falling, investment managers can’t charge as much in performance-related fees. They also lose out when customers withdraw funds, and that’s been happening too.

Lloyds withdrawal

The company took a big hit when Lloyds Banking Group withdrew £24.4bn in the half. That’s due to a dispute stemming from the merger of Standard Life and Aberdeen Asset Management to create the current firm. Lloyds saw a conflict of interest.

But the good news is that’s the last tranche of Lloyds money. And to put it into perspective, abrdn’s remaining assets under management still totalled £508bn.

The bottom line showed an IFRS loss before tax of £320m, which looked bad. But abrdn put that down mainly to “the change in fair value of our significant listed investments in the period“. The company recorded an adjusted operating profit of £115m.

There are good reasons to avoid investing in abrdn shares. Well, for short-term investors, for sure. The big investing firms rarely look beyond the next quarter or two, wanting to be seen holding the winners whenever they report their figures. And that can open opportunities for long-term private investors.

Second half

Still, if the first half for abrdn was tough, the second half could even be tougher. Inflation in August was a bit less painful than we’d feared — the 9.9% reported this week was better than forecasts suggesting 10.2%. But the Bank of England reckons recession is unavoidable.

The only real question is how long the economic downturn might last. Oh, and how much more money investors might withdraw from asset managers like abrdn. And what effect that could have on share prices over the next 12 months.

Thinking on that final question, I suspect the bad news might already be factored into the abrdn share price.

At the first-half stage, abrdn maintained its interim dividend at 7.3p per share. That’s in line with last year. And if it’s repeated for the second half, we’d be looking at a dividend yield of 10% on the current abrdn share price.

Long term

That’s by no means certain, and I think a second-half dividend cut is a realistic possibility, depending on the cash situation in the half. But even if there’s no final dividend at all (which I think unlikely), shareholders would still have pocketed 5% this year. And that’s not bad.

We may have a tough time ahead. The company itself said: “Current market uncertainty means our ambitions for revenue growth and improved cost/income ratio are likely to take longer than originally expected“.

But I invest for the long term. And abrdn is firmly on my list of options for my next investment.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Alan Oscroft has positions in Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Publish Test

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut…

Read more »

Investing Articles

JP P-Press Update Test

Read more »

Investing Articles

JP Test as Author

Test content.

Read more »

Investing Articles

KM Test Post 2

Read more »

Investing Articles

JP Test PP Status

Test content. Test headline

Read more »

Investing Articles

KM Test Post

This is my content.

Read more »

Investing Articles

JP Tag Test

Read more »

Investing Articles

Testing testing one two three

Sample paragraph here, testing, test duplicate

Read more »