ii view: Funds leak dampens profit at Standard Life

Can an improved investment performance bring the cash back to this Scottish fund manager?

Full-year results to 31 December 2019

• Fee based revenue down 12% to £1.63 billion
• Adjusted profit before tax down 10% to £584 million
• Adjusted diluted Earnings Per Share (EPS) up 8% to 19.3p
• Total full-year dividend unchanged at 21.6p per share

Chief executive Keith Skeoch said:

"We have seen growing momentum in the second half of the year across the business with improved investment performance and flows.  We remain on track to deliver targeted synergies and have identified more we can deliver as we continue to reshape the business and sustain resilience.

"Our strong financial position, capital generation potential and focus on operational efficiency enables us to invest in the business to drive profitable revenue growth and shareholder return.”

ii round-up:

Fund manager Standard Life Aberdeen (LSE:SLA), formed from the merger of Standard Life and Aberdeen Asset Management in 2017, today reported mixed full-year results. 

Revenues, hindered by a further net outflow of £17.4 billion at its institutional business, declined by 12% to £1.63 billion. As such, profit fell by 10% to £584 million. 

Lost funds largely reflected investor sentiment towards emerging markets. But net fund outflows improved from the near £41 billion lost in 2018, as the Edinburgh headquartered group’s investment performance improved. 

An additional £50 million of annual cost savings come 2021 have also now been identified, on top of the £350 million per year expected to be made by the end of 2020. 

The shares, and against the backdrop of a rebound in markets following Monday’s oil focused turmoil, gained by more than 3%, although trailed gains for rivals Legal & General (LSE:LGEN) and Prudential (LSE:PRU). 

Accompanying management outlook comments pointed to a turbulent 2020 for markets and the fund management industry, made complex by the addition of the coronavirus. 

ii view:

An ageing population and moves by government to place a greater emphasis on individuals to save for their own retirements provide for a favourable backdrop. Ultra-low interest rates have also seen savers seeking returns from cash alternatives such as equity related products.

However, competition in the asset management arena remains intense. The growing popularity of low-cost index tracking products has put more traditional managers under pressure to compete and reduce fees.

For investors, an historic dividend yield of over 8% (not guaranteed) offers appeal, although the payment per share now exceeds earnings per share – leaving the dividend cover ratio at less than one.  Moves to cut costs and conduct business in China look sensible. But with net fund outflows ongoing and low-cost managers such as Vanguard competing hard, room for investor caution remains.  

Positives: 

• Targeted annual cost savings of at least £400 million
• Chinese business previously secured a licence to develop a pensions business

Negatives:

• A fund net outflow of £17.4 billion 
• Vanguard previously cut its own fees further escalating a price war

The average rating of stock market analysts:

Hold