Global jitters fail to dent Aberdeen’s progress

WEAKNESS in emerging markets and a £20 billion net outflow of funds under management in its latest financial year failed to stop shares in Aberdeen Asset Management topping the FTSE 100 leaders’ board yesterday.
Group chief executive Martin Gilbert said the acquisition of Swip had made Aberdeen more balanced and diverse. Picture: GettyGroup chief executive Martin Gilbert said the acquisition of Swip had made Aberdeen more balanced and diverse. Picture: Getty
Group chief executive Martin Gilbert said the acquisition of Swip had made Aberdeen more balanced and diverse. Picture: Getty

It came as the fund manager, which acquired rival Scottish Widows Investment Partnership (Swip) for £606 million in March, lifted underlying pre-tax profits 2 per cent to £490m in the 12 months to end-September.

Bill Rattray, Aberdeen’s chief financial officer, said cost savings from the Swip acquisition were running at £35m to date.

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He said: “The integration is going very well. We are progressing well ahead of schedule.”

When Aberdeen bought Swip from Lloyds Banking Group, it targeted a group operating profit margin of 55 per cent by the end of 2015, but Rattray said this has already been achieved.

Many City analysts believe the group will eventually be able to shake synergies in the region of £45m out of the acquisition.

A final dividend of 11.25p gives a total payout for the year of 18p, compared with 16p in the previous year.

David McCann, fund management analyst at Numis Securities, commented: “I think the shares have gone up mainly because the synergies from Swip are ahead of expectations. The company in its analyst presentation also hinted at share buybacks in March or April.”

Share buybacks increase the earnings of the fewer shares left in circulation, and on the stock market Aberdeen’s shares jumped nearly 4 per cent at one stage yesterday before closing up 1.7 per cent, or 7.6p, at 457.5p.

Emerging markets have been flat this year, with geopolitical risks from the Ukraine crisis and a drop in oil prices weighing on Aberdeen’s shares, which have underperformed the wider market by 9 per cent.

However, Rattray said the Swip acquisition had reduced the group’s equity exposure to emerging markets from about 50 per cent to 25 per cent. “We are still seeing volatility in those markets. It’s difficult to predict the timing of a recovery in emerging markets, but we do believe we will see one in the medium to long term,” he added.

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Most of Aberdeen’s outflows were from equity funds, particularly those investing in Asia-Pacific and global emerging markets, but the company said the pace slackened in the final quarter and that trend continued in October and November.

Swip contributed net outflows of assets under management of £4.4bn, while the Aberdeen part of the business recorded net outflows of £16bn. Statutory pre-tax profits, including exceptional items, fell to £354.6m from £390.3m.

Martin Gilbert, group chief executive, said the underlying profits improvement came despite a tougher trading environment “as investor sentiment turned sharply against emerging market economies”.

The group said the fragile state of parts of the global economy “means markets remain very sensitive”.

However, Gilbert said that the acquisition of Swip had made the company a more balanced and diverse business “more easily able to ride out the ebb and flow of investor sentiment in particular asset classes and geographies”.

Aberdeen increased its assets under management by more than 60 per cent to £324.4bn from £200.4bn, while net revenues were 4 per cent up at £1.12bn.

Cash rose 53 per cent to £654m from £426.6m. Analysts at broker Canaccord said: “Although Aberdeen is broadening the product suite, this will not immediately translate to strong net inflows.”

Aberdeen added that the property markets had begun to recover, but it had decided to take “a number of opportunities to crystallise profits”.

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The company said: “This has been in areas which we believe are out of line with the economic fundamentals and the market, whether this be prime office stock in gateway cities or weaker, secondary stock that has seen a permanent change in quality.”

The group’s property teams added more than £1bn of net inflows during the latest financial year. By contrast, fixed income net outflows totalled £3.6bn.