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How will a pivot to passive affect Standard Life’s share price?

How will a pivot to passive affect Standard Life’s share price?

Standard Life Aberdeen’s [SLA.L] share price began the year at 330.50p before falling by almost 50% to 174p on 23 March. As the pandemic spooked its clients, many switched to lower fee passive funds. The lifting of lockdown in the UK and hopes of an economic bounce back helped Standard Life’s share price hit 281.10p on 8 June, but the stock slumped again, hitting 208.90p on 25 September after disappointing first-half results in early August. 

Standard Life’s share price continued to plateau even after new boss Stephen Bird arrived in September, reaching just 257.20p on 12 November.

In an interview with Bloomberg on 12 November, Bird said he planned to build a portfolio of passive products in order to stem investor outflows and respond to growing demand for index investing. Ultimately, the hope will be that this can, in turn, boost Standard Life’s share price.

“Passive is an essential component of a full solution provider. We are screening for which technology, which people, which capabilities can help us get there,” Bird said. “An ideal active-passive split would be 70/30. If you stay as an old traditional asset class asset manager, you will be extinct.”

As of 30 November, Standard Life’s share price climbed 6.8% to 274.80p.



Reversing course

Despite only 32% of its investments lagging their benchmark compared with 40% last year, Standard Life Aberdeen reported a drop in pre-tax profit to £195m down from £280m. Fee-based revenue of £706m was down from £815m.

Its assets under management and administration dropped 6% to £512bn, hit by Lloyds Banking Group’s [LLOY] decision to switch £25bn of investments to rival Schroders.

Keith Skeoch, in his last results as chief executive of Standard Life, painted a gloomy picture. “The outlook for markets is tough. I don’t think this recovery without a vaccine is going to be V-shaped, it’s going to be W-shaped,” he said.


"The outlook for markets is tough. I don't think this recovery without a vaccine is going to be V-shaped, it's going to be W-shaped" - Keith Skeoch, former Standard Life CEO


Following the statements from Bird, however, it is expected that Standard Life will build up more index linked exchange-traded funds, buy ETF technology and boost investments in assets such as infrastructure.

Some analysts are sceptical about the chances of success for Standard Life’s share price.

“It will be quite a challenge to achieve this,” Numis Securities analyst David McCann told Financial News. “Bearing in mind that BlackRock [BLK], Vanguard [VOO] and State Street [STT] have a 20-30 plus year head start, and certain European competitors like Legal & General [LGEN], DWS [DWS], HSBC [HSBA] and Amundi [AMUN] also are well experienced in this market, it is really hard to see how this might work.”


Brand power

Prior to Bird’s comments, Standard Life had received a Sell recommendation from five analysts rating the stock, with five offering a Hold rating and three a Buy, according to Marketbeat. The average target for Standard Life’s share price is 253.33p.

Barclays rated it Underweight and gave it a 240p price target. Royal Bank of Canada rated it an Underperform and gave it a 225p price target.

JPMorgan has an Overweight rating and a 270p target on Standard Life’s share price, stating that it has room to reduce its dividend payout in 2020/21 to a 7% yield — still leaving it ahead of the 3.5% average for FTSE 100 stocks — and to make acquisitions in its investment unit.

There is also hope that Standard Life’s share price will gain from investing in wealth management services. 

“[Standard Life Aberdeen] is the fourth-largest wealth management business in the UK. It has failed to capitalise on this during the past few years,” Rupert Hargreaves wrote in The Motley Fool. “Wealth management can offer higher profits than fund management. Further, Standard Life is one of the most trusted financial brands in the country, which should give it an edge over competitors.” 

He added that the combination of its dividend yield and potential earnings expansion from new growth initiatives means Standard Life’s share price could produce large total returns in the years ahead.


Market cap £6.302bn
Operating margin (TTM) 53.49%
EPS (TTM) -39.80
Quarterly revenue growth (YoY) -19.00%

Standard Life's share price vitals, Yahoo Finance, 3 December 2020


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