Global investment company Standard Life Aberdeen (LSE:SLA), the UK’s largest listed asset manager, has been struggling of late. The popularity of passive funds, rather than active, has shareholders leaving for pastures new.
Standard Life’s share price is up 20% from a year ago, but it hasn’t been a worry-free ride and the price has fluctuated considerably over this time.
Recently analysts have been downgrading the firm, and some have predicted that a dividend cut is on the cards. The current dividend yield is 6.9% but it’s only covered 1.3 times by earnings per share. The cash Standard Life is generating is weaker than the earnings it is generating, which is another reason for these predictions.
Hurdles and headwinds
When Standard Life and Aberdeen Asset Management merged in 2017 it was valued at around £13bn but today that valuation has almost halved to £7bn. Managing the merger has not been a smooth process with escalating costs and obstacles to overcome along the way.
Since the merger, the group has seen an improvement in its key asset classes such as Asian equities and emerging markets. So, it’s not all bad news.
Its price-to-earnings ratio (P/E) is 7 and earnings per share are 46p. While assets under management are declining, Standard Life also has many stakes in other companies such as FTSE 100 Phoenix Group and India-based HDFC Life Insurance and HDFC Asset Management. This diversification could keep it afloat if UK headwinds continue.
The Woodford fallout hasn’t helped the Standard Life Aberdeen share price either. It has cast a shadow over the entire industry.
Keith Skeoch, Standard Life CEO, has said we should learn lessons from the Woodford scandal and that it’s time for a shake-up of the governance framework used for UK retail funds. Opting for processes more in line with pension funds and larger investors should increase confidence in the sector.
Personally, I think there is too much uncertainty and risk surrounding this share for my liking. I would avoid for now.
Environmental market leader
Porvair (LSE:PRV) specialises in filtration and environmental technology, which is a growing necessity in our modern world.
The Porvair share price rose over 62% in 2019 and has risen a further 6% year to date. This has pushed up its P/E ratio, which is now on the high side at 32. Earnings per share are 23p, up from 22.1p in 2018 and 19.5p in 2017. It offers a dividend, but it’s very low with a yield of less than 1%.
Porvair operates three divisions: aerospace and industrial, metal melt quality, and laboratory. Aerospace and industrial is its best performing, with 13% revenue growth reported at the end of November.
It is well placed to benefit from the ESG investing trends that are sweeping the investment industry. Porvair is a global business, so downsides to consider are the US-China trade war, which could continue to suppress growth, as could the Coronavirus outbreak.
However, it has shown consistent growth in recent years and has a healthy balance sheet to match. It has been growing through acquisitions and is a market leader in its field. With more stringent environmental regulations being put in place globally, this has a positive effect on demand for Porvair’s products. Despite its high P/E, I continue to like this stock and consider this FTSE All-Share company a ‘buy‘.