Over the past 12 months, the Standard Life (LSE: SLA) share price has been a pretty poor investment. Even including dividends paid to investors, since the beginning of September last year the stock has produced a total return of -26%, underperforming the FTSE 100 by -24% during this time frame.
Unfortunately, it doesn’t look as if the outlook for this business is going to improve any time soon. Here are the three reasons why I believe the Standard Life share price could keep falling.
When Standard announced the company was merging with emerging markets-focused asset manager Aberdeen Asset Management two years ago, management expressed optimism that investors would rush to buy into the enlarged group.
That just hasn’t happened. The fund manager had £15.9bn of net outflows in the first half of 2019, an improvement on the £24bn of outflows in the second half of last year, but still above analysts’ expectations.
It doesn’t look as if this trend is going to improve anytime soon. The relatively high cost of Standard’s products coupled with a poor investment performance leads me to conclude investors will continue to pull money from the business for the foreseeable future.
Less money to manage means lower fees for Standard. Despite achieving nearly £234m of the annual £350m cost savings it had promised from the Aberdeen merger, Standard’s adjusted profit before tax was £280m in the first half of 2019, down from £311m for the same period of 2018.
This time last year, City analysts were expecting the company to report earnings of 29p per share for 2019. Now they’re forecasting profits of just 18.9p per share.
Growth is forecasst to return in 2020 but, based on past performance, I’m not going to hold my breath. I wouldn’t be surprised if the company misses forecasts once again next year if outflows continue to weigh on profitability.
I might be able to forgive all of the above if shares in Standard were appropriately priced, but they’re not. At the time of writing, shares in the asset management business are dealing at a forward P/E 12.9, compared to the industry median of 13.3.
Considering the company’s bleak growth outlook and investor outflows, I think the stock deserves to trade at a substantial discount to the rest of the asset management industry. At the current price, it looks to me to be fully valued.
So those are the three reasons why I think the Standard Life share price could keep crashing. However, while I’m not overly optimistic about the company’s short term outlook, I think in the long term, this business will perform well. Its strong brand and experienced managers should help the group pull through the current turbulence and emerge stronger on the other side.
Sweetening the deal is a dividend yield of 8.6%, an attractive level of income for patient investors who are willing to wait for the turnaround.
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Rupert Hargreaves owns shares in Standard Life Aberdeen. The Motley Fool UK has no position in any of the shares mentioned. 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.