Harvey Jones sizes up Aberdeen Asset Management plc (LON:ADN).
It's time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I've got my wallet out. So here's the question I'm asking right now. Should I buy Aberdeen Asset Management (LSE: ADN)?
Funds under management
If you're expecting stock markets to do well this year, then why not invest in the shares of a fund manager? They tend to outperform when markets are rising and investors are clamouring for their products, and Aberdeen Asset Management has just had a stormer. It has risen a mighty 70% over the past 12 months to to £3.77, roughly 10 times faster than the FTSE 100 (UKX). Can investors expect more of the same this year? And if so, should I buy it?
This UK-listed asset manager is best know for its specialist unit and investment trusts investing in Asia and emerging markets, overseen by star manager Hugh Young. He has managed a string of successful funds at the group, including Aberdeen Asia Smaller Companies and Edinburgh Dragon Trust, and delivered an annualised total return of 11.8% a year over the last 13 years. That makes him a major company asset in his own right. If you are bullish on Asia generally and China in particular, Aberdeen could be a good way to play it from the safety of the UK.
Lean, mean, Aberdeen machine
Aberdeen only hit the FTSE 100 in March 2012, and it's been celebrating ever since. In November, it reported an 11% rise in full-year revenues, and a 15% increase in underlying pre-tax profits to £347.8 million. Assets under management rose by £17.3 billion to £187.2 billion, a 10% increase, thanks to a combination of strong investment performance and new client money. Aberdeen also beefed up its balance sheet, doubling its net cash position to £266 million. Management was understandably upbeat, claiming its success supported its "long-term philosophy and rigorous investment processes".
So what can go wrong? Well, stock markets can always go wrong. When that happens, investors are prone to sell their funds in a panic, which would hit Aberdeen (along with every fund manager). Although the investment world has belatedly turned bullish (we're always bullish at the Fool), a blow-up in the US, eurozone or China could still bring out the bears, and reverse the recent sharp upturn in Aberdeen's fortunes. Fund managers also face pressure on fees, from the press, regulators and savvy investors. That could hit Aberdeen's margins, although so far they have held up well.
Whether to buy Aberdeen rests to a larger-than-usual degree on how you view prospects for the wider market. It also depends on factors such as the yield, currently a modest 3%, covered 2.1 times, and how the market values the stock. Aberdeen trades on a forecast price-to-earnings ratio of 14.8 times earnings for September 2013, which makes it nearly fully valued. That is hardly surprising, given recent performance. As the FTSE floats clear of 6,000, I'm seeing this happen with more and more of my target stocks. Gosh, I like Aberdeen, I only wish I'd bought it a year ago...
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> Harvey doesn't own any shares mentioned in this article.