In 2018, the Standard Life Aberdeen (LSE: SLA) share price slumped 43.6% making the stock one of the worst performers in the FTSE 100.
However, despite this performance, I highlighted Standard Life as one of my top buys for 2019 at the beginning of this year. While the rest of the market was selling shares in the asset manager, I was attracted to its 9.7% dividend yield and track record of creating value for shareholders as well as its hidden value on the balance sheet.
Considering these factors, I was prepared to look past the group’s near-term headwinds and concentrate on its long-term potential.
As it turns out, I made the right decision to buy Standard Life at the beginning of 2019. Over the past 12 months, the shares have produced a total return of 41.1%, outperforming the FTSE 100 total return index by a wide margin. This index has returned just 15% over the past 12 months. These figures suggest that £1,000 invested in the company at the end of 2018 would be worth £1,441 today.
I think this performance can continue. 2019 has been something of a transformational year for the firm as it has progressed with the integration of Aberdeen Asset Management.
The benefits of the merger are now really starting to flow through. Earlier this year the company declared that the integration process was 75% complete and that savings would total £400m by the end of 2020. City analysts are forecasting a 3% increase in earnings per share for 2020.
That’s not to say that the company is entirely out of the woods yet. Standard Life is still grappling with the challenges that led investors to exit in droves in 2018. These include outflows from its leading Global Absolute Return Strategy, which was once the largest fund in the UK market.
The fund managed £20.7bn in February 2018, but now has assets of just over £6bn. Outflows from the group’s property fund have also spiked this year.
These trends are concerning, but the asset management business only accounts for around 22% of the group’s value, according to City analysts. The company’s non-core businesses, such as its Indian life insurance joint venture, and its holding in FTSE 100 peer Phoenix, account for most of its worth. In my view, this is where the real value lies.
If you take these assets away from the rest of the business, analyst estimates suggest the underlying asset management business is trading at a single-digit P/E multiple. As a result, I think that any improvement in underlying profitability at this part of the company could lead to a big jump in the share price.
That’s why I’m still a buyer of the Standard Life share price, even after its recent performance. As well as the hidden value on the balance sheet, there’s also that 6.6% dividend yield to look forward to, so investors will be paid to wait for a recovery.
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.