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Is further trouble ahead for the abrdn share price after H1 revenue loss?

FTSE 100 fund manager abrdn’s share price suffered earlier this week after it reported lower-than-expected half-yearly results. Though the stock has recovered some of its losses, the market downturn that contributed to its weaker results is likely to continue to impact performance.

The abrdn [ABDN.L] share price closed 6.8% lower on 9 August after the company announced a loss for the first six months of the year as market uncertainty dented investment performance. While shares in the investment company have since recovered from the post-earnings decline, the stock was still trading down 25.3% for the year at the close on 11 August.

abrdn reported a pre-tax loss of £320m for the first half of the year, which was a steep decline from the £113m profit in the same period last year. Fee-based revenue for the half fell 8% to £696m, which was below the £714m analyst consensus. Stephen Bird, the company’s CEO, noted that a “rapid downturn in the global economy and markets” has “affected the sector and had an impact on the Investments vector and overall group performance”.

The poor set of results continues a trend of underperformance from the Scottish-based asset manager. Since its 2017 merger with Standard Life, the company has struggled with lacklustre growth and has seen consistent net outflows of managed assets for the past few years. When the two companies merged, they had a combined market cap of over £11bn, but five years of poor performance has pushed this down to £3.7bn.

While the performance of the asset management industry in the past six months has been weakened by volatile global markets, abrdn is still lagging behind its peers. UK asset management and financial services giant Legal & General’s [LGEN.L] share price has fallen only 0.8% since the start of 2022, having been boosted by robust H1 results, while BlackRock [BLK], the world’s largest asset manager, is down 19.3%.

Half-year results hit by further asset outflows

Total assets under management dropped to £508bn from £542bn in the year ago period. Approximately £24bn of this decline in assets was the result of a final withdrawal of assets from Lloyds Banking Group. After the merger with Standard Life, the bank decided to terminate its contract for abrdn to manage £109bn of assets from its insurance and pensions subsidiary, Scottish Widows, and has been unwinding the contract for several years.

With this being the final withdrawal in assets related to the cancelled contract, CEO Stephen Bird, noted that abrdn can now “draw a line under the episode of Lloyds moving away” from the group. abrdn has seen net outflows in assets under management for the past six years and will be eager to start growing its book once again. 

Analysts share bleak outlook as abrdn prepares to cut costs

There is optimism that the second half of the year will come with greater revenue opportunities for the company. The asset manager is expecting that the first full six months of revenue contribution from Interactive Investor, its newly acquired trading platform, will help to bolster profits and offset some of the challenges seen in the first six months of the year.

However, the trading platform has not seen the growth it would have wanted in the first half of the year. Only 19,000 new customers signed up to the platform for the first six months compared with 47,000 in the first half of 2021. It is likely that increased market volatility in the past few months has discouraged investors and reduced the number of people willing to open new investment accounts.

The management is committed to reducing costs within its investment vector to improve the overall profitability of the group over the next few years. The group is disposing of non-core businesses that drive up costs and is aiming to deliver gross savings of approximately £150m by the end of 2024.

Despite the company’s plans to make significant cost reductions, analysts remain downbeat over abrdn shares. Out of 18 analysts polled by the Financial Times as of 10 August, two gave the shares a ‘buy’ rating, one rated them ‘outperform’, seven ‘hold’, six ‘underperform’ and the remaining two analysts gave ‘sell’ ratings. Out of 16 of these analysts offering 12-month price targets, the median target was 175p, representing a 1.2% upside on its 11 August closing price.

Disclaimer Past performance is not a reliable indicator of future results.

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