Standard Life's share price has crashed over 40% since its £11 billion all-share merger with Aberdeen Investment in 2017. The merger was intended to create a European fund management powerhouse. Instead it has delivered little in the way of shareholder value.
A lack of strategy, dual-CEO structure and investment outflows have all contributed to a collapse that has not only seen the share price drop, but has also dented revenue.
Thursday's half-year results should provide clues as to whether Standard Life [SLA] have finally managed to turn a corner, or if it's time for investors to unload the stock.
What to look out for?
The big number to look out for will be outflows from SLA's asset management business. Last year, the fund manager haemorrhaged £40 billion in assets under management (AUM), up from the £32 billion in 2017.
Yet CEO Keith Skeoch is optimistic. Skeoch reckons last year's £75 billion worth of gross inflows proved that the asset management side of the business is healthy. But this wasn't enough to cover outflows, with net AUM dropping by a tenth last year.
Among the doubters are RBC who earlier this year increased their forecast for outflows from £23.2 billion to £33 billion. This would be equivalent to 6.5% of SLA's £505 billion total assets under management. Making matters worse, SLA has now experienced 10 straight years of increased outflows. Failure to get this under control could be terminal.
RBC's raised forecast for SLA outflows
Martin Gilbert steps down from SLA’s board
Up until earlier this year, Martin Gilbert was both vice-chairman and co-CEO of SLA. Only recently has he stepped aside to let Keith Skeoch take the reins as sole CEO. This couldn't come fast enough for shareholders who had misgivings over the dual-leadership structure. Among the criticisms aimed at the pair were a lack of cohesive strategy on where to take the company and the number of external positions Gilbert occupied.
With Gilbert rumoured to be stepping down as vice-chairman to join fintech Revolut, shareholders will be keen to see a clear, cohesive strategy. Backing Skeoch up will be Jonathan Asquith who joins as a non-executive director from September.
Has the company gone far enough in clearing out the deadwood? Post announcement trading will be a good indication of this.
Lloyds has agreed to pay SLA a £140 million settlement after withdrawing £109 billion of assets managed by Standard Life. As part of the settlement, SLA will keep around a third of the funds under management until at least April 2022. News of the settlement should help quell fears over outflows, up to a point.
Is Standard Life a long-term bet?
While outflows have increased, earnings have been on the rise. This could point to a company that without a clear strategy, but one knows how to grind out a profit. For bargain hunting traders, the stock carries a 9.8x PE ratio (TTM) with a share price that is down 28% this year. For those who think SLA is now moving in the right direction, the stock could be a decent long-term bet - something that Keith Skeoch has been talking up on FTfm:
|PE ratio (TTM)||9.78|
Standard Life share price vitals, Yahoo finance, 05 August 2019
"At a time when the industry is being disrupted, we have positioned ourselves ahead of the game. Many investors see us as a long-term value play.”
How good a bet is debatable. Among analysts, the consensus for the stock is a "Buy" with a 380p average price target. Hitting this would represent a 33% upside on the current share price. Buoying the stock has been the recent performance of multi-asset products, such as the firm’s Global Absolute Funds Strategies (Gars). This has helped the share price climb over 7% in the past four months.
But a Procensus poll of institutional investors saw SLA's stock rank poorly with respondents. Procensus noted that concern persisted over outflows, including those from Gars. Martin Gilbert’s association with the troubled H20 fund was also a concern, with Morningstar stripping its rating.
In 2018's full year results, SLA said that integration with Aberdeen Investments was now 75% complete. At the time Keith Skeoch said “Everyone can look forward to the light at the end of the tunnel and to reaping the benefits.” How far this is borne out in Thursday's earnings results will play a big part in which way the share price goes.