The abrdn (LSE: ABDN) share price has had a bad few years. But the same is true of most stocks in the finance and investment business.
In the words of CEO Stephen Bird: “The investment industry faced further structural and macroeconomic challenges during 2023 with a ‘higher for longer’ [interest] rate environment across developed economies adding sustained pressure on most asset classes.“
Various issues have pushed abrdn shares down 33% in five years. And that’s after a tick up of a couple of points on results day (27 February).
Earnings up
The results for FY23 looked a bit of a mixed bag.
Net operating income dropped 4%. The company recorded a £6m loss before tax in IFRS terms, but that was a lot better than the £612m IFRS loss in 2022. And the firm says it “reflects adjusting items of £336m“.
Short-term profit and loss can be misleading for an investment firm, as there’s constant adjustment in asset values going on. It’s not like Tesco, which buys stuff and sells it.
Assets under management — or AuM — is a key measure. And the 1% fall to £495bn seems pretty good to me in the year we’ve just been through. It did represent a 35% higher net outflow of £13.9bn, mind.
Despite the pressure, we saw a 32% rise in adjusted diluted earnings per share. The dividend is unchanged at 14.6p, for a 9% yield.
Dividend cash cow
Cash returns are key to me. I’m wary when I see such a big dividend yield, especially in tough times like these. But seeing abrdn coming up with the cash gives me a bit of confidence.
Broker forecasts show the same dividend maintained through to 2025. And if I owned the shares, I’d be more than happy to take the cash while I wait for the investing industry to pick up.
Still, the dividend had to be the biggest risk in the next few years. If the company can’t maintain it, I could see another slump in the share price.
Here’s a thought. A single £20k Stocks and Shares ISA allowance put into a stock that returns a steady 9% per year could grow to a million in 19 years.
Outlook
The board’s outlook pretty much told us to expect more of the same in 2024, and that’s good enough for me for now.
Cash margin broadly in line with 2023, tough market for asset managers, modest cost growth with inflation falling slowly… no big surprise.
The firm expects to achieve cash savings of at least £150m annually, with total restructuring costs of less than £150m in 2024.
This guidance does assume “a stable interest rate environment“, and that seems conservative. If the Bank of England does cut rates in 2024, maybe we’ll see a better result.
My verdict
My overall take from this is “steady as we go.” And for me right now, we go fine. I rate abrdn as one to consider for long-term income investors. It’s on my ISA candidates list for 2024.
