The FTSE Russell released its Indicative Quarterly Review on Tuesday. The review stated that Abrdn (LSE: ABDN) will potentially exit the FTSE 100.
With its share price at 150p, the UK Investment stock has seen a staggering 44% decline in the last year. Its half-year report included missed sales targets, running it down 5.5% this month alone. A decline in the share price decreases the stock’s market capitalisation, pushing it closer to FTSE relegation.
But is there a chance for Abrdn shares to rally before the final decision, due next week? And is this plummeting stock perhaps a cheap addition to my portfolio? Let’s take a look.
Interactive Investor
The company’s interim report raised concerns for many investors. Financial downturns, and a costly acquisition, have prompted many to sell their shares.
Some growth sectors have seen large falls this year. Indeed, the FTSE techMARK 100 reported a 13% fall in tech constituents since January. This has taken a big swing at Abrdn’s growth-focused investment strategy. Since half-year FY21, losses from investment increased from £4.6bn to £5.2bn. Pre-tax profits fell 83% to a total loss of £320m. Management said it would refocus on the real asset market (such as property) to better position it against future volatility. But such intentions are unlikely to move the share price enough in time to avoid FTSE relegation
The company’s £1.4bn acquisition of Interactive Investor in late May possibly scared off some shareholders. The cost-of-living crisis suggests interest in the investment platform would have dwindled as the market is increasingly disrupted. However, the platform actually saw increased customer acquisition, subscription revenue growth, and operating leverage. This led to Interactive Investor driving £0.2bn of a total £0.3bn of Abrdn’s net cash flow.
Management took a risk in such a big expense, but it seems to be paying off. Yet a £1.4bn acquisition during tough times like these has clearly dampened investor interest, I feel.
Managing investor relations
Abrdn has shown continued commitment to its shareholders however. A strong dividend yield and share buyback indicates the company possesses some strength.
Its dividend yield currently sits at an impressive 9.74%. Management again delivered a 7.3p interim payout. Indeed, the company intends a 14.6p annual payout for the year. This builds upon a strong dividend history. The company has generally increased its final payouts since 2009. This makes Abrdn something of a Dividend Aristocrat, in my opinion.
The £300m share buyback has progressed. With a current £150m financed, shareholders should be able to look forward to their share value increasing as Abrdn buys up its shares. The company reported a £0.6bn capital surplus (after its acquisition of Interactive Investor ). This gives me confidence that it can deliver the declared buyback, alongside continued dividend payouts.
So why have shareholders continued to jump ship? Abrdn has been hit particularly hard by the market’s turbulence this year. Pre-tax profits and investment inflows plummeted, alongside that untimely acquisition of Interactive Investor. I think many investors have seen the financial instability of this wealth manager, and decided not to stick around for the FTSE Russell decision.
I believe Abrdn’s market cap will continue to drop, and with it, the company’s FTSE 100 presence will end. Because of this, I won’t be looking to add Abrdn shares to my portfolio any time soon.
