I’m always looking for the best buys in the Footsie, so how do abrdn (LSE: ABDN) shares stack up?
Well, the share price fell 10% in response to H1 results on 8 August. And, despite a bit of a rise since late 2022, we’re still looking at a five-year drop of 47%.
Interim results
The latest drop comes after the investment firm posted a rise in outflows. At £4.4bn in the first half, this was more than expected.
Clients withdrew funds, understandably, largely due to inflation and interest rate pressures that so many are feeling.
And chief executive Stephen Bird spoke of the “challenging macro environment” behind this set of figures.
But there’s plenty on the update to make me feel bullish about the future for abrdn shares.
Buyback
The board announced a new share buyback. After the sale of some non-core investments in the first half, abrdn bought back £150m of its own shares.
That’s now been extended to £300m.
The company recorded an IFRS loss before tax of £169m, but that’s mainly down to falls in asset values. On an adjusted basis, operating profit rose 10% to £127m.
And even with that capital outflow, the core business looks sound to me.
Cyclical vs long term
I see abrdn as a great example of a cyclical stock, which investors often get wrong.
When stock markets are booming, people hand money to firms like abrdn to invest for them. And when we’re in a mess like we face today, out comes the investment cash, and down come the fund managers’ share prices.
But I love it when I see a cyclical business down in the dumps. Because that gives me a chance to buy shares while I think they’re cheap.
That is, as long as I rate the underlying business as solid, and the company’s finances as good enough to get through the cloudy times.
Short-term risk
There definitely is risk here. And it’s the kind of nasty ‘viscious circle‘ kind. The more people take their cash out, the more abrdn can suffer, and the more people can take their cash out…
So I think there’s a good chance that abrdn shares will have a tough second half. And I wouldn’t be surprised to see the price head closer to 2022’s lows before the year is out.
But the liquidity situation looks fine to me. And abrdn maintained its interim dividend at 7.3p per share, though it was only just covered by adjusted capital generation.
If the final payment stays the same, we’d be looking at a 7.6% dividend yield based on the share price at the time of writing.
Best in the Footsie?
So are abrdn shares the FTSE 100‘s best buy? It’s hard to say, because I see so many top stocks competing for that coveted status.
But I have abrdn in the top five for my next buy, to hold for at least a decade.
