Standard Life [SLA] suffered £40 billion in investment outflows last year. A huge amount for any asset manager. To stem losses CEO Keith Skeoch took a massive 64% pay cut, while former Co-CEO Martin Gilbert agreed to a 23% cut. Gilbert also saw his sizeable bonus get chopped from a potential 600% of annual salary to 350%.
Lower down the pecking order, staff are expecting the dreaded doughnut bonus this year - that is £0 - while others think pay will be cut. Then there are rumours of job losses. Standard Life already trimmed 800 jobs following its merger with Aberdeen Investments a couple of years back. Now it looks like there could be further redundancies on the cards following the sale of its insurance arm to Phoenix.
Keith Skeoch's pay cut
Morale isn't good at Standard Life. An unarmed source told the Telegraph:
"People are not happy. Some wanted as much as previous years, but that was never going to happen."
How do Standard Life's financials look?
The company’s financials are - as you might expect given the bonus cuts - not in great shape. Quarterly revenue growth comes in at -41.20% year on year. And an EV/EBITDA ratio of 14.85 suggests that the company’s value (debt included) is poor, relative to its cash earnings. Both numbers will worry shareholders.
|PE ratio (TTM)||9.74|
|Total debt/equity (MRQ)||17.20|
SLA stock vitals, Yahoo finance, as at 5 April 2019
News of Gilbert stepping down as co-CEO to take the vice chairman position could help smooth things over with investors. Shareholders had been clamouring for the company to ditch its joint CEO-structure in favour of a single boss, preferably an outsider. But with veteran Skeoch still at the wheel many will question whether he will make the necessary changes.
On a brighter note, Standard Life emerged triumphant in a legal dispute with Lloyds Bank [LLOY]. Lloyds had wanted to walk away from an investment contract worth £100 billion. The courts thought otherwise and ordered the bank to either honour the deal or pay a hefty £300 million compensation bill.
Is there opportunity in Standard Life shares?
Shares are down over 35% in the past 12 months, but investors can at least take solace that the 236p level has provided some support for the share price. More solid news on Brexit and the UK economy could see an uptick, but investors shouldn't hold their breath on that one.SLA 1-year share price performance, CMC Markets, as at 5 April 2019
Standard Life has also been gobbling up its own shares in a series of buybacks. At the start of the month it completed the second £200 million tranche of its £1.75 billion scheme. With fewer shares on the market, the stock could conceivably see a rise in value.
Among analysts covering the stock, Jefferies reduced its valuation from 410p to 361p, which would still be a 30% gain in share price. Clearly, Jefferies remains bullish on the stock and rates it a buy. They point out that Standard Life has a strong balance sheet and is committed to paying out 21.6p a share.
"So, at current levels, SLA will yield over 8% until the dividend starts growing again, after 2021 we expect. With this attractive yield and realisable assets, we still see value in the shares,” Jefferies said in a note to investors.
“So, at current levels, SLA will yield over 8% until the dividend starts growing again, after 2021 we expect. With this attractive yield and realisable assets, we still see value in the shares” - Jefferies
Backing up their argument, Jeffries point to the sale of £380 million worth of shares to HDFC Life as proof Standard Life can raise money by selling off assets it deems unessential.
Jefferies isn't alone in recommending the stock. According to the Financial Times, 15 analysts that follow the stock have a median 12-month price target of 319p a share. The overall consensus is that Standard Life will outperform the market this year, despite its recent woes.