abrdn (LSE: ABDN) shares plunged in 2022, losing around 40% of their value at one point. But in the past two months, the price has climbed more than 50%.
So what’s changed with the investment company. And is it still a buy after these gains?
There hasn’t been much news, but the firm has been buying up its own shares. The most recent purchase, on 5 December, took the total to date to over £125m. That says a few things to me.
One is that abrdn is not short of cash. Analysts predict an accounting loss this year. But it doesn’t necessarily mean there’s anything wrong. In fact, for the first half of the year, the firm reported an underlying operating profit of £115m.
Performance
That’s down from £160m in the first half of 2021, but it’s due to the declining value of its investments. And that’s exactly what long-term investors should expect from an investment manager during a bear market.
The share buyback also, presumably, means the board thinks the shares are undervalued at the current price. Or, at least, fair value.
And finally, I see a share buyback as a sign of confidence. I think it would be reckless of a company to spend millions on share buybacks if it had fears for the next few years. I rate management as generally conservative, and certainly not reckless.
Dividend
And then there’s the dividend. At the halfway stage, abrdn announced an interim dividend of 7.3p per share. We also learned that its “previously stated dividend policy remains unchanged“.
I find that reassuring. And forecasts currently suggest a full-year dividend yield of 7.1%. That’s one of the benefits of buying when a share price is down — we get elevated dividend yields.
As well as the dividend, there’s another valuation metric I find attractive. The shares are trading on a forecast price to book ratio (PBR) of around 0.6. So the shares are significantly cheaper than the value of the underlying assets they represent.
If the assets are falling in value, a low PBR is expected. But if stock markets have passed their bottoms, it could be another indicator of a cheap stock.
Too soon?
The pandemic period highlighted one risk of buying into a recovery stock, and that’s getting in too soon. We just need to look back at a few of the tentative recoveries we’ve seen, and how quickly they ran out of steam.
With abrdn, I see a real chance that the current bull run could reverse. And we might well have a few false starts, a few ups and downs, before the shares can maintain a higher valuation.
I see the recession, which could last a couple of years, keeping the pressure on abrdn. So I don’t rate it as a no-brainer to buy without question. But nothing is quite like that.
For me though, a time when a sector is under the most pressure is often the best time to buy.
