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Aberdeen Anguish

26 October 2015 By George Hay

Martin Gilbert could do worse than making his next piece of M&A a sale of his own company. The Aberdeen Asset Management chief executive distanced himself from such an idea on Oct. 26, following media reports. But it would be odd if he wasn’t considering his options.

Over 30 years, Gilbert has built Aberdeen into one of Europe’s largest independent fund management groups, with 331 billion pounds of assets under management. Despite his penchant for using shares to finance a spree of acquisitions, shareholders have received a 386 percent total return since 2005. The equivalent for the FTSE all-share index since then is 94 percent.

Yet Aberdeen’s total return over the last year has been minus 12 percent, against plus 6 percent for the benchmark. That’s because the equities division, which provides a third of AUM and is 36 percent exposed to Asia Pacific, saw 12.9 billion pounds of outflows in 2014. It will probably see more this year: overall 2015 outflows could hit 32.3 billion pounds, or 10 percent of AUM, Liberum analysts forecast

Gilbert doesn’t have to sell. Partly because emerging markets did well after the financial crisis, Aberdeen’s book equity is twice what it was in 2010. The group should be able to cover the next two years of dividend per share growth even if outflows run at 39 billion pounds in 2016, Liberum reckons – twice its forecasts.

But EM outflows could conceivably exceed this as interest rates rise across developed markets. While the 2013 acquisition of UK-focused Scottish Widows Investment Partnership hedges Aberdeen’s EM pain, it means the potential to tangibly shift its future via yet another acquisition is limited. Analysts polled by Eikon on average think the group is worth only 345 pence, below the current share price.

Aberdeen trades at a 10 percent discount to peers on a forward earnings basis, but at a 9 percent premium to its 10-year earnings multiple. Banks like Credit Suisse want to bulk up in asset management. If Gilbert wants a quick solution to the question of Aberdeen’s future leadership, he should be testing the water.

This story updates the analyst poll in paragraph 5.


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