The abrdn (LSE: ABDN) share price gained a few percent in morning trading on 24 April, as Q1 assets saw a boost.
Assets under management and administration (AUMA) rose by 3%, to £507.7m at the investment firm. That’s only a modest rise, but it’s heading in the right direction.
And I reckon it’s one more sign that UK investor confidence is finally strengthening again.
abrdn’s share price, though, is still down nearly 50% in the past five years. And it’s not far off its low point of 2022. Whether this might mark the start of a turnaround is still a big question.
Q1 update
In this latest update, CEO Stephen Bird spoke of “a positive contribution from markets across all three businesses,” with the firm reporting “net inflows at a group level“.
But the firm’s Investments and Adviser businesses still need more work, he says.
Mr Bird also said: “Our cost transformation programme is on track as we take action to sustainably restore our business to a more acceptable level of profitability.”
So, it seems we’re still looking at a work in progress here, in the board’s quest to get back to earnings growth.
Earnings growth
Forecasts do show growth in earnings in the next few years. But even if they’re right, we’d see earnings before interest, tax, depreciation, and amortisation (EBITDA) still lower in 2026 than it was in 2021.
Still, 2021 was before inflation really started to soar and the Bank of England hiked interest rates. And sentiment in the following couple of years went from bad to worse.
The City expects dividends to be maintained in the next three years too, but that gives me mixed feelings.
Big dividend
At FY 2023 time, the CEO said: “Our balance sheet remains strong which enables us to fund our cost transformation while continuing to strategically invest in growth areas and maintain our dividend“.
The firm paid 14.6p per share. And if we see the same again this year, it would mean a yield of 10.2% on the latest share price.
And that’s good, right?
Well, it’s clear that the dividend is based on the balance sheet, and not on earnings. In fact, forecast earnings fall way short of the mooted dividend.
Nervous
Does it unnerve me a bit when I see dividends being paid out of assets and not earnings? Yes, it does.
More than a big dividend, I want to see a sustainable dividend. And we won’t know if that’s what we have for some time yet.
Meanwhile, I recall another 10%+ dividend, from Vodafone. And that will be slashed next year.
Three things
Still, despite my misgivings, I see three things that look positive for the future of the abrdn share price.
One is that return to AUMA grow. Even though modest, it’s a plus.
The firm’s restructuring also shows solid progress. As the boss said, “we have reshaped the business to fit the modern investment landscape.” That has to be good.
Finally, there’s a general rise in investor confidence, being reported by a number of investment firms.
