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In early Tuesday (10 June) trading, aberdeen (LSE: ABDN) shares are leading the charge in the FTSE 250. Up 7%, as I write, the boost has come after analysts at JPMorgan upgraded the stock and set a new price target of 218p.
But with the stock still valued at only a third of its peak achieved 10 years ago, there could be a lot more to come in the years ahead.
Analyst upgrade
The primary reason why the investment bank upgraded the stock was greater competitive pricing in its adviser platform, known as Wrap. It said: “We expect a combination of greater gross flows, as well as a decline in redemptions, which should drive net flows into positive territory“.
Off the back of cheap, low-cost, passive income funds, the asset manager’s Adviser division has been suffering persistent outflows for years. The bank drew a comparison to Quilter which, after slashing fees, witnessed strong net flows shortly thereafter.
The bank was also very complimentary of the company’s direct-to-consumer offer, interactive investor (ii). I’ve long admired the ii flat platform fee. Unique across the industry, it has become the go-to platform for wealthier private investors, with assets per user nearly double those at peer firms.
Adviser business
ii might be the asset manager’s standout performer, but a sustained upward move in the share price is unlikely unless it can turn around its Adviser business.
The opportunity in this particular market is huge. aberdeen holds the number two spot in the UK market, serving 50% of independent financial advisers and 400,000 end customers. It has an 11% market share.
The advice market’s growing, and fast. What’s known in the industry as the ‘advice gap’ is creating significant opportunities. The need for affordable, tailored financial advice is expected to grow exponentially in the years ahead.
Intergenerational wealth transfer will be a huge driver. Over the next 25 years, an estimated £5.5trn is expected to be passed on through inheritance, gifts and the like. Most of that wealth has of course come from ever-increasing house prices.
Risks
I don’t want to paint a picture of a bed of roses at aberdeen. The business undoubtedly faces a number of challenges. During the tariff-induced sell-off, the stock was one of the worst performers in the FTSE 250. This is simply down to the fact that, as an asset management business, should a recession ensue, the value of its underlying portfolio would decline.
It’s still struggling badly to make a number of its funds relevant. A long-held exposure to Asian markets, where it has particular expertise, continue to be shunned by investors. Most capital continues to flow into US markets.
The dividend yield of 7.5% has come down considerably as the share price has risen. There may be no increases on the horizon, but its still one of the most attractive shareholder returns out there.
But for me, there’s still a lot to like about aberdeen. It operates in a growing market with a highly unique business model, and a diversified client base from individuals all the way up to sovereign wealth funds. I view the stock as a long-term recovery play investors could consider and I continue to build a holding when finances allow.
