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Abrdn share price to fall as capital outflows spiral?

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The Abrdn [ABDN] share price has had a weak start to the year, falling 27% year-to-date, as of 4 August. The FTSE 100-listed asset manager has struggled as increased market volatility has driven outflows from managed funds, as the half-year results announcement on 9 August is expected to confirm.

Based on research carried out by 16 analysts between 12 May and 26 July, consensus estimates suggest that Abrdn is set to post £714m in fee-based revenue for the first half of 2022 – a 5.4% decline versus the year-ago period. Consensus estimates on operating profit point to a steeper decline of 18.75% year-on-year to £130m.

The expected drop in earnings comes as the asset management industry is fighting to hold on to investors’ capital as outflows increase amid persistent market volatility. Analysts are expecting Abrdn to see £38.8bn in net outflows for the first six months of the year, up 593% from £5.6bn in the year-ago period and equivalent to 7.4% of Abrdn’s total assets under management. Net outflows have been an ongoing trend at the company for the past six years.

The downbeat outlook is in line with the Abrdn share price’s performance so far this year, which has underperformed the FTSE 100’s 0.7% year-to-date drop, as of 5 August. The stock is also lagging behind some of its peers in the asset management industry, with Legal and General [LGEN] down just 4.9% since the start of the year.

Back to black: Abrdn returns to revenue growth

Abrdn’s full-year 2021 results were notable as it showed the first increase in revenue since its 2017 merger with Standard Life. Fee-based revenues rose 6% year-on-year to £1.52bn, with adjusted operating profit up 47% at £323m. Stephen Bird, the company’s CEO, noted that Abrdn’s ability to identify the key areas where it has a “true competitive advantage” helped it achieve a strong set of full-year results.

However, investors were disappointed to see that 2021 was another year of net outflows. The company also had to address its previously substantial Russian exposure. Abrdn announced back in March that it had reduced its Russian holdings to around £2bn in total, accounting for roughly 0.5% of its total assets.

A £1.5bn acquisition to stimulate growth

Bird began his role as CEO in September 2020 with the intention of injecting growth back into an underperforming company. The asset manager’s rebranding from Standard Life Aberdeen to Abrdn was part of a plan to modernise the 197-year-old firm and ignite growth. The decision to acquire Interactive Investor, the UK’s second largest funds supermarket, for £1.49bn was also part of this plan, with the takeover expected to complement its operations and generate a new revenue stream.

Interactive Investor, more commonly known as ii, has just under £55bn in assets under administration and the company is hopeful that the addition will fit seamlessly into its business model. Abrdn believes it will be able to offer its own wealth management services to Interactive Investor’s 400,000 customers.

However, even without these extra growth opportunities, Abrdn believes it has acquired a leading player in an attractive market. With an approximate 20% share of the investment platform market that is growing 15% a year, ii is in a good place to provide the growth that Abrdn is aiming to capture.

Nevertheless, analysts share a pessimistic outlook on Abrdn stock ahead of the 9 August half-year results, with the company expected to announce a fall in earnings. Out of 18 analysts polled for the Financial Times, two gave the shares a ‘buy’ rating, one an ‘outperform’ rating, seven ‘hold’, six ‘underperform’ and the remaining two rated them a ‘sell’. Of 16 analysts offering 12-month price targets, the median was 180p, representing a 7.4% upside on its 4 August closing price of 167.6p.

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