Tuesday, 12 March 2013

Aberdeen Asset Management (ADN.L)


Around this time last year Aberdeen Asset Management made its debut in the FTSE 100. The business model is fairly simple - increase assets under management (AUM), keep a tight control on costs and grow profits.

Most small investors would be better off investing via low cost trackers like Vanguard, however, no matter how much this message is repeated, there will always be investors ready to be seduced by the advertising of the financial services industry. So long as there is a demand for their services, the likes of Schroders, Henderson, F&C and Aberdeen can grow profits and therefore can themselves be a decent investment.

Aberdeen have a good range of funds and investment trusts, many of which have produced consistently good returns - some I hold are Murray International, Dunedin Income Growth and Murray Income.

They has been on my watch list as a potential purchase for quite a while and yesterday, I decided to add a ‘half’ holding to my portfolio at the price of 425p (cue for sp fall!). With new additions, I generally look to start off with a smaller initial stake and add to it later based on results, dividend increases and share price movement.

If the markets continue to improve, I would hope to see the likes of Aberdeen make further progress as they should attract more inflow of new money and funds continue to increase net assets. Half year results are expected end April.

Fundamentals

Aberdeen issued their full year results last November - here’s a link via Investegate 2011/12 Results
Revenues increased 11% to £869m and profits were up 15% - assets under management increased 10% to £187bn. The figures that caught my eye were the increase in dividend from 9p last year to 11.5p - an increase of 27.7% (covered 2x by earnings), following on from a 28.5% increase the previous year. Secondly, the doubling of net cash to £226m which further strengthens the balance sheet.

As usual, I regret not having bought earlier - at the time of the results the share price was around the 340p mark and yield over 3%. The current yield is near to 2.8%, however I have pencilled in a dividend of 13.5p for the coming year which will lift the forward yield to 3.2%. Dividends have more than doubled since the 5.5p paid in 2007 - the increase is an impressive 15.9% CAGR. If they continue at a similar rate, the dividend will double every 4.5 years.

Obviously management of funds connected to the financial markets will be cyclical and I expect the share price to be a little more volatile as a result but I think over the long term ADN has reasonable prospects given the impressive track record of recent years.

As ever, please DYOR

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