The abrdn (LSE:ABDN) share price dipped at the start of trading on Wednesday 24 January after the firm released a trading update. The stock hasn’t performed well in recent years, and the trading update didn’t contain much to raise investors’ spirits.
So, let’s delve deeper into the news, and explore whether we could be looking at a golden opportunity to buy a beaten-down stock.
Nothing to get excited about
The core data wasn’t particularly cheerful. The business said that assets under management and administration (AUMA) totalled £494.9bn at the end of 2023 — a new low.
Despite the company’s best efforts, clients pulled a further £12.4bn in the six months through December. As such, net outflows represented 3% of opening AUMA.
Chief executive Stephen Bird highlighted that market conditions had remained challenging for the business, amid high inflation and geopolitical uncertainty, and as clients looked to cash and to de-risk portfolios.
Interestingly, this narrative is very different from the one AJ Bell provided last week. The DIY investment platform operator announced “record” assets under administration and said that the results reflect “increased confidence among retail investors”.
In response to these results, abrdn said that it was cutting 500 roles across the group as part of a new cost-cutting initiative.
Obviously, there are two ways of looking at this.
First, investors may see this as a positive. After all, cost-cutting drive can make a profound impact on profitability, and often quickly.
Equally, it may reflect a lack of confidence in the business by management. With interest rates set to fall, you’d expect to see business returning to asset managers. Some might see this as a strange time to be cutting jobs.
“After a root and branch review, we are now re-engineering and simplifying our business model to remove at least £150m of costs – mostly from group functions and support services,” the company said.
Would I buy abrdn?
On the surface, abrdn looks like a strong dividend pick. The dividend yield currently sits at 8.8% making it one of the best on the FTSE 250.
However, dive a little deeper, and all is not as healthy as it may seem. The dividend coverage ratio is just 0.72, so net income doesn’t cover the dividend.
That’s a sign that the dividend is unsustainable, even if the figure isn’t entirely reflective of the exact situation due to accounting practices.
Next, I’m a little concerned by volatility. abrdn stock plummeted during the summer after it was demoted from the FTSE 100 — this likely reflected FTSE 100 tracker funds selling positions in the stock. But over a longer period, it has performed poorly too.
Despite the purchase of Interactive Investor in 2022, I don’t have much confidence in abrdn moving forward. Its funds have struggled to outperform the market and the company appears to be treading water.
