Abrdn or bust?

23rd May by timarr

12 comments 1204 reads

I have a thesis, which is probably wrong (they usually are) that the much unloved Abrdn (LON:ABDN) is an opportunity hiding in plain sight. Please shoot me down ...

Abrdn (sod it ...) Aberdeen is a complex, fairly hopeless active manager that's seen a succession of issues with customers withdrawing funds, star managers decamping, overpaying for acquisitions, losing vowels and demonstrating the general level of incompetence that one would normally associate with a government department on a good day. It's quite clearly on the wrong side of history, as indexing grows ever more important and AI looms menacingly in the rear view mirror. Frnkly it's a trrble cmpny.

But ...

It's so complex I don't really know how to value it (hence the post), but there are a couple of metrics that stand out. Back at the beginning of the year Graham Neary pointed out how cheap Jupiter Fund Management (LON:JUP) was, estimating that you got about £100 of assets under management (AUM) for every pound you spent in buying shares. Well, on the same metric for Aberdeen you currently get £180. If Jupiter is cheap then Aberdeen is the discounted crap you get at the back of a discount shop.

Aberdeen also owns interactive investors (ii) which they bought at a then inflated price of £1.5 billion back in 2021. Roughly ii can be compared to Hargreaves Lansdown (LON:HL.) and AJ Bell (LON:AJB) - it's a brokerage platform offering share dealing and access to funds for relatively active investors. To be fair HL and AJB are more wealth management platforms for the less than super rich but it doesn't seem unreasonable to try and value them on a similar basis.

As of today - which has seen both HL and AJB share prices rise significantly in the wake of the bid for HL - this looks like:

HL - each customer is worth £2,497 (4.6 billion market cap / 1.86 million customers)
AJB - each customer is worth £2,982 (1.5 billion market cap / 503,000 customers)

At last count ii has 400,000 users and on an equivalent basis, taking the lower of those values and then discounting 25%, that gives a valuation for ii of just shy of £750 million.

Hence, at the current price of £1.56 for Aberdeen you're getting a staggering amount of AUM (which…

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Snowbum

23rd May

Thanks for posting Timarr, you’ve broken down the numbers far better than I could but we are thinking along similar lines. I’d noted the moves in the sector and after taking a position, in Cavendish Financial (LON:CAV) , which has started well, I was looking for a large cap to add in the mix, so thought I’d check Abrdn (LON:ABDN).

For my 2024 isa, I opened an account with ii and have been pleasantly surprised by the low fees and simplicity of the platform relative to my other acct with Hargreaves Lansdown (LON:HL.) . The recent discussion on possible short squeeze candidates also prompted a look - I was then interested to see Abrdn (LON:ABDN)‘s ’Super Stock’ rating, so the algorithm likes it even if no-one else does! These three elements: solid stock rank, terrible sentiment, high short interest, sounded like a set-up for it to move higher imo. A review of the chart looked decent too with the 2022 low made at a key fib extension level followed by a more recent higher low to form a double bottom.

So, I’m now a recent holder of Abrdn (LON:ABDN) having entered on Tuesday at 151.15p with a 10% portfolio position, I’ll be keeping a close eye on it though. Also ~10% dividend yield at current price too; should the sp recover and stabilise at a higher level I may well keep it as a longer term hold.

FWIW I hold SB’s in Abrdn (LON:ABDN) as well as St James's Place (LON:STJ) for a rebound trade. Hopefully the Hargreaves Lansdown (LON:HL.) bid will spook the shorts!

M48

24th May

I think you might be onto something.

I held ii when it was private before abdn bought it (by virtue of previously holding Share plc that ii bought out). Part of the rationale at the time of abdn's acquisition was iirc supposedly for abdn to cross market its own funds to a wider retail investor base. But having been an ii customer throughout this time, I don't recollect any attempt to leverage that so looking at ii now I see no logic to it being part of a bigger fund management group. Anyone looking to invest in this area would surely find ii worthy of consideration, it must come with less baggage than HL at a cheaper price. Edit - and with less risk of margin erosion vs the likes of HL or AJB given their charging structures.

doctor dave

26th May

Abrdn (LON:ABDN) I sold my stake six months ago having lost patience, and trusting that I might do better elsewhere.

I originally bought when they took over ii reasoning that in the long term they were taking over a strong brand with lots of assets under management.

Buying Abrdn (LON:ABDN) today ought to look smart in five years' time. But with the market in full flow, I don't currently have the patience for it.

john2

As Snowbum points out, the 9.21% yield is not negligible. Even if the shares remain at the same price, it's a worthwhile investment.

andrewdb

I hold Jupiter Fund Management (LON:JUP) and Hargreaves Lansdown (LON:HL.) .

I see where you are coming from but I think the key metric is more how much money you can make out of each customer.

AUM: HL 9.2 bn, AJB 2.8 bn (from google)

this tells you that as well as more clients, HL (and i am a customer) also has (slightly) more funds per customer under management compared to AJB.

In the long term I see the "dumbbellisation" of this market.

e.g. low/no cost tracker providers like vanguard that provide client accounts at a v. low price that provide simple services. I think JUP may have a chance here in the UK market because of the name recognition, but my holding is not large and tbh i lack conviction.

On Aberdeen fund managers - I would have said that with a fairly well known name and rather more AUM than JUP, they were a better idea than JUP. Sadly, I have no idea who Abrdn is, and do not think anyone else does.

At the other end there are wealth managers and in the layer below, HL, which is attempting to find a way to "provide advice without providing advice" if they succeed they will do well. and a customer base with more money provides more opportunity to offer more services - and charge for them.

As per the other end of the market, the only real moats are scale, name recognition, longevity, and reputation - HL currently has all that (as long as the woodford court case doesnt get much profile)

AJ bell does not have as much scale or longevity (yet). ii is in the same place.

My key thought on thinking it out (probably incorrectly) is that I am happy to hold HL, but see no good reason in holding Abdrn or JUP (i hold) or AJB (*in the long term*)

muckshifter

27th May

Do Aberdeen's results over the last year or so indicate declining client numbers on the ii platform, or improving numbers? Personally I'm leaving them and it prompts that question in my mind.

JSLDUK

Good post. Big dividend high book value too but sales and profit look a bit up and down. Can the dividend be supported if these metrics don’t improve? Feel there are safer bets with high dividend shares at the moment. British American Tobacco (LON:BATS) BP (LON:BP.)

timarr

Hi Andrewdb

Agreed, but I don't think anyone would invest in Abrdn (LON:ABDN) for its current earnings generation - it's poor, to put it mildly. The question comes down to whether the current valuation discounts the obvious issues and whether those issues are insurmountable. Because it they're not then either the company will sort itself out or someone will come along and do it for them.

I just can't see how a sum of the parts valuation makes any sense. There's a 10% stake in Phoenix group (LON:PHNX) which is worth over half a billion plus another billion in surplus capital on the balance sheet. Add in ii and the advisory business - which made a combined £110 million profit in the first half - and it looks like the funds management arm is being valued at less than zero.

While not doubting the challenge to managed funds going forward right here and now it's hard to see how a business with £370 billion of assets under management, in a bull market where all boats are being floated and interest rates are about to fall, can be valued at nothing.

Plus the CEO got defenestrated on Friday. It is nothing if not interesting looking at Abrdn.

timarr

The Phoenix

28th May

I'm beginning to think your onto something here Tim I didn't realize they owned 10% of Phoenix group (LON:PHNX), the other positive is they are also reducing the share count annually.

I work in this industry and they have been a basket case buying assets/platforms like they already owned internally then not knowing what to do/ how to integrate the parts they had bought.

But looking through your numbers and the comments on here I did originally think Aviva (LON:AV.) was the stand out take over candidate in the sector but I'm know thinking this looks way better value to a predator or as you say they might get a management team in that can sort all the mess out.

Thanks for highlighting.

Andy

Couple of other things I found out today they are reducing platform costs so this will be negative for profits but another possible upside is by all counts their db pension scheme has a £700 million surplus and they are trying to figure ways to unlock some of this to drive the business forward.

abtan

3rd Jun

Abrdn (LON:ABDN) (I hold now)

Hi Timarr

Thanks for the post.

I agree that there seems to be an opportunity here and I ended up buying some this morning.

As you mentioned the Sum of The Parts breakdown just doesn't make sense vs the current £2.9b Market Cap.

Advisor + ii Businesses

The Advisor and ii businesses alone seem relatively stable and the combined pro-rated operating profit over each of the last 2 years (ii was acquired mid-2022) was between £200m and £230m.

The Q1 update and stealth Q2 update last week implied that H1 is going well.

For my own modelling I've been focussing on the following KPIs:

ii subscription revenues (should be relatively stable),
revenue/trade (should be relatively stable),
trades/customer (expecting an increase),
rising customer numbers (it is increasing),
rising AUM's (it is increasing),
a decreased allocation of Cash AUM (expected to decrease),
stable cash margins (this has been guided by the company.)

Based on what management have told us + what I hope are sensible assumptions I'm hoping that the FY25 Operating Profit will come close to £250m.

If we assume a x10 multiple, which I personally think is far too low, then that's most of the current Abrdn (LON:ABDN) market cap (£2.9b) accounted for.

Phoenix

Add in the current £540m stake in Phoenix group (LON:PHNX) + their 10% dividend (£54m last year) and you're right, the Investment Business looks like it's thrown in for free.

Investment Business

It's hard to know what will happen here, however:

previous and ongoing restructuring will lower the cost base,
management have indicated that AUM has been rising in H1 so revenues should be higher this year.

Surely we should expect a higher profitability than the lowly £50m achieved in FY23?

Note that the operating profit was £130m in FY22.

---

I don't usually like such large, complex businesses. There are too many unknowns and I can never be sure what's going on.

Additionally I'm sure that a lot of smart people will be looking at this as well and I question what are they seeing that I'm not to justify such a low market cap.

However, from what I can see right now the current valuation just doesn't look right.

Fingers crossed the company can get things back on track and that the share price starts to rise. Especially now that I've bought some.

6th Jun

Something else for the negative box Tenet a UK based advice network has gone into administration Aberdeen were a stakeholder estimated at possibly 50% of share capital they booked an impairment charge against Tenet last year of £14 mil but any remaining value most likely needs writing down now to zero.

Abrdn or bust?

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Timarr

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