When I looked at FTSE 100 asset manager Standard Life Aberdeen (LSE: SLA) in September, I was tempted to buy. Unfortunately the shares have continued to fall since then, dropping by a further 18% to their last-seen level of 258p.
Based on consensus forecasts for a 2018 payout of 25.6p per share, Standard Life stock now offers a prospective yield of 9.9%. A dividend yield this high usually means one of two things. Either the share price is too low, or the dividend is going to be cut.
I can see value
In my last piece, I noted that the group’s share price was supported by the value of a £1.3bn stake in India’s HDFC Asset Management and a roughly £1bn stake in FTSE 250 insurance group Phoenix.
Falling share prices mean that I estimate that these holdings are worth about £2bn today. Subtracting this from Standard Life’s £6.75bn market cap gives us a valuation of £4.75bn for its core asset management business.
This division generated an adjusted profit after tax of £250m during the first half of 2018. If the second-half performance is unchanged, then the group’s continuing business is trading on a modest price/earnings ratio of about 9.5.
The dividend could be at risk
What concerns me is that the group’s dividend could be cut. This year’s forecast dividend of 25.6p per share is 97% of forecast earnings of 26.3p per share.
One possible solution is that the ongoing £750m share buyback will solve the problem. I estimate this could cut the group’s share count by as much as 10%, lifting earnings per share and cutting the total dividend bill.
We’ll know more in the New Year. For now, I’m maintaining my income buy rating on this stock.
This 7% yield could be a bargain
The share price of shopping centre owner Intu Properties (LSE: INTU) has fallen by more than 30% since the start of 2016.
Shareholders’ losses would be even worse, except that the group has received a possible offer of 210.4p per share from a consortium which includes Peel Group, the largest shareholder.
Intu’s board hasn’t yet decided whether to recommend the offer. But the company came out fighting today with a trading statement which suggested that demand for its properties remains strong.
Rents up 8%
The group signed 84 long-term leases during the third quarter, at an average rent of 8% above the previous rate. Occupancy remains high, at 97%. And although footfall is down by 1.3%, the company says that its growing web presence is helping to stimulate online sales for retailers in its properties.
The only bad news was that market values for retail properties are still falling. The group’s preferred measure of net asset value fell by 3.9% to 297p per share during the third quarter. This follows an 11% drop from 349p during the first half of the year.
What should you do?
One concern for me is that Intu’s loan-to-value ratio has now risen to 50.6%, higher than rivals such as British Land (28%) or Land Securities (25.8%).
A second concern is that if the takeover offer fails, the shares could fall back to the 150p level seen at the start of October.
Although I’m tempted by the stock’s 33% discount to book value and 7% yield, I don’t see much point in buying until the outcome of the Peel Group-led offer is known.
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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co, Landsec, 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.