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He open (LSE:ABDN) share price fell off a cliff in the summer, falling 33% in a month to bottom at 159.4p on 22 August. It has risen a little in recent weeks but, at 183.35p, the recovery is far from complete.
The big draw is that it now offers a sky-high yield of 7.98%, with the prospect of further price recovery in 2024 and beyond. Should I buy the shares?
Perhaps the first thing I should say is that there are many financial stocks on the market. FTSE 100 with similar size performance. It is a sectoral feature at this time. Finance has fallen out of favor after several years of stock market volatility.
Troubled time
I am already an asset manager M&Gwhich yields 8.93%, and Legal and General Group (7.86%), and I have my eyes on Phoenix group holdings (9.79%). So I should think carefully before adding Abrdn to my portfolio.
Interestingly, both L&G and Phoenix are noticeably cheaper, trading at just 6.4 times earnings. Even M&G's highest forecast price-to-earnings (P/E) ratio of 16.4 times is lower than Abrdn's surprisingly expensive P/E of 17.46 times.
Abrdn suffered a blow to his reputation over the summer when he closed his Global Absolute Return Strategies (Gars) fund, once the UK's largest with a value of more than £25bn and a big favorite of financial advisers. The smart and complex strategies he used to achieve positive returns even when stock markets fell ultimately failed.
On August 8, Abrdn reported a drop in net assets under management (AUM) in the first six months of 2023, from £500bn to £495.7bn. our old friend “challenging market conditions” was the culprit. Net outflows amounted to £4.4bn.
However, the drop in assets under management was only 0.86% and the sell-off seemed like something that had no longer happened to me. Especially as the group posted a 10% rise in adjusted operating profit to £127m and doubled its share buyback program to £300m. That didn't help troubled investors much. When the risk is gone, the risk is gone.
it's too expensive
Today, risk is rising again as investors expect interest rates to fall in 2024. Abrdn's share price is slowly rising, up 4.38% last week, although it is still down a 2.78% in 12 months and a huge 36.11% in three years.
Investors remain wary of Abrdn, which posted a £615m loss in 2022, reversing a £1.1bn profit in 2021, after suffering from what it called “one of the most difficult investment years in memory”. The company has never really found its footing since suffering teething problems from the merger of Standard Life Aberdeen Asset Management in 2017.
Probably his best decision was purchasing the Interactive Investor fund platform in 2022, which added a strong new source of income. The expected return is 8%, but the coverage is only 0.8, which adds another layer of concern. The dividend was reduced from 21.6p to 14.6p in 2020 and remained so throughout 2021 and 2022. However, with £1.5bn of net cash, it should be sustainable. Markets predict a 7.96% return in both 2023 and 2024.
What happens next depends largely on the stock market. As I am personally quite optimistic about 2024, I think Abrdn could continue its recovery. Although I'm not excited enough to buy it today.
