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Why the Standard Life share price could crush the FTSE 100 this year

Shares in Standard Life Aberdeen (LSE: SLA) have performed disappointingly so far this year. With five months of 2018 gone, Standard Life shares have fallen by 17%, while the FTSE 100 has remained flat overall. 

I reckoned full-year results released in February looked pretty reasonable (if not exciting), though my Motley Fool colleague Kevin Godbold was unimpressed — especially by the firm’s optimistic dividend plans.

On the day of its AGM on Tuesday, Standard Life Aberdeen announced its intention to return up to £1.75bn to shareholders, with £1bn of that via a B share scheme and the remaining £750m through a share buyback programme.

It’s all part of what to do with the proceeds of the sale of the firm’s European insurance business to Phoenix Group, and that alone has overshadowed any financial fundamentals and any forecasts of what the new slimmer company is going to look like.

The deal would involve £2.28bn in cash together with a 19.99% stake in Phoenix Group, and has been touted as a way to enhance the close strategic partnership the two firms already have. Standard Life Aberdeen is to focus on asset management, and will continue to perform that function for the business sold to Phoenix.

That itself sounds reasonable, so why the share price underperformance, and can it come back? I can’t help thinking, with the merger between Standard Life and Aberdeen Asset Management to create the new company having happened so recently, it’s mainly uncertainty that’s led to such a loss of confidence.

But if the rest of the year goes well, I can see the shares coming back, with the potential to soundly beat the FTSE. We are, after all, looking at a modest forward P/E of under 13 and forecast dividend yields of more than 6%.

Finally turning?

Meanwhile, AstraZeneca (LSE: AZN) has been disappointing investors who had hoped that its pipeline rebuild programme would have resulted in renewed EPS growth. 

Despite its efforts, analysts are still forecasting a further fall in EPS of 21% this year, though there’s a 13% recovery on the cards for 2019. Earlier predictions for new growth have proved too optimistic, but are things finally set to come good again?

Positive clinical news has been coming in regularly of late, with the company’s Lynparza (olaparib) tablets having received EU approval earlier in May for the treatment of some forms of ovarian and related cancers. We’ve also seen US FDA approval for Lokelma for the treatment of adult hyperkalaemia, and approval in Japan for Forxiga (dapagliflozin) as an adjunct treatment for type-1 diabetes.

First-quarter results showed a hit from the falling off of Crestor (rosuvastatin) as cheaper generic alternatives continued to eat into sales. But improving sales of new products largely offset that, as total revenue for the period declined by just 4%. 

Full-year guidance was maintained, crucially with the firm “continuing to anticipate product sales growth this year, weighted to the second half.

With the expected earnings fall this year, AstraZeneca shares are still on a forward P/E for the current year of 22, which certainly looks a bit high. But if this year’s anticipated product sales growth does happen, and if it translates into earnings growth next year, we’d see that falling to 19 — and that really could, finally, presage a return to long-term growth.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca and Standard Life Aberdeen. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.