Shares in Standard Life Aberdeen (LSE: SLA) have been a pretty disappointing investment to own over the past three years. The stock has underperformed the FTSE 100 by around 8% per annum, including dividends since 2016. Over the past five years, it’s underperformed by about 9% per annum.
But it didn’t always use to be this way. Between the beginning of 2012 and 2015, shares in Standard Life doubled in value before the company decided to merge with Aberdeen Asset Management. Since the merger completed in 2017, investors have been giving the enlarged company a wide berth for several reasons, including, but not limited to, Brexit, which is entirely out of management’s control.
The question is, when Brexit is finally delivered, will investors return to the stock, and could the Standard Life Aberdeen share price double your money?
Trying to figure out how much shares in this asset manager and long-term savings business are worth, is a complex process because there are so many moving parts. There’s the asset management business here in the UK, which was formerly Aberdeen Asset Management, and then there’s Standard Life’s legacy pension and savings business. Management is also throwing the group’s resources behind a new wealth management business, branded 1825.
On top of this, the group owns interests in a handful of other businesses around the world, including a 20% stake in India’s HDFC Life. In recent months, it’s also secured a licence to provide pensions in China with a joint venture partner.
I’m most excited about the opportunities provided by Standard’s growth initiatives. Its wealth management and financial advice service 1825, as well as the Chinese joint venture, could grow to become substantial contributors to the bottom line in time.
I’m less excited about the legacy business. Standard has been struggling to retain assets at the fund management business as customers move off to find other low-cost options elsewhere. In the first half of 2019, for example, the company reported a £15bn outflow of funds, although the total value of assets under management rose 5%, thanks to rising stock markets.
While Standard’s initiatives could supercharge the company’s growth, the legacy business still makes up the bulk of group earnings. And with this being the case, I think the stock looks quite expensive at current levels.
Shares in the business are currently changing hands at a forward P/E ratio of 15.4. Considering the fact that Standard is struggling to retain customers at its most significant division, that seems quite expensive to me.
A dividend yield of 7.6% at the time of writing does sweeten the appeal, but if earnings continue to full, this might be unsustainable.
The bottom line
Based on all of the above, I’m afraid to say I don’t think the Standard Life Aberdeen share price could double your money from current levels. The stock looks expensive, based on current growth estimates, and unless the legacy business suddenly starts growing again, I reckon it’ll be some time before management’s growth initiatives start to boost the bottom line.
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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.