The troubles afflicting FTSE 250 income stock abrdn (LSE: ABDN) have been well documented, and they’re not over yet.
The asset manager was formed in March 2017 via the £11bn merger between Standard Life and Aberdeen Asset Management. Instead of driving value, the ill-fated mash up destroyed it. Today, the group’s worth less than £2.5bn.
Pretty much everything that could have gone wrong, did. Everything from losing valuable investment mandates to seeing flagship funds collapse and embarking on a ridiculed company rebrand.
Can the share price recover in 2025?
Since launch, the abrdn share price has crashed from 385p to today’s 140.8p, a peak-to-trough loss of more than 63%. And the slide just won’t stop, with the shares down 23.67% over the last 12 months.
They look cheap though, trading at 9.93 times earnings. The trailing yield is off the scale at a whopping 10.43%.
This combination of a high yield and low valuation is now routine across the financial sector. It’s the same pattern at FTSE 100 financials Legal & General Group, M&G and Phoenix Group Holdings.
While none have sold off as hard as abrdn, their shares aren’t exactly bombing along. Abrdn operates in a cyclical sector and it’s out of favour.
The one thing everyone agrees abrdn got right was to snap up consumer investment platform Interactive Investor in March 2022.
Interactive Investor continues to bomb along, with abrdn’s 24 October update showing assets under management had jumped 13% year-to-date to £74.5bn. Customer numbers grew 6% to 430,000.
Elsewhere, the news was characteristically grim, with net outflows at its investment division totalling £4.5bn so far this year. They were concentrated in Asia and emerging markets, which continue to struggle due to China’s slump.
This FTSE 250 stock is hard to love
By 29 November, abrdn was the UK’s most shorted stock. Anybody buying it today is sticking their neck out.
The 16 analysts offering one-year share price forecasts have produced a median target of 157.6p. If correct, that’s actually an increase of 12.6%. Combined with that yield, this would give investors a total 12-month return of more than 22%. We’ll see.
Of those analysts, two rate abrdn a Strong Buy but they’re in a minority. Five say Hold while eight label it a Strong Sell.
Yet many will see that low valuation and high yield, and be tempted. At some point, the financial sector’s due a re-rating. That could happen if interest rates fall markedly next year, injecting fresh life into markets.
It will also make sky-high yields like this look even more attractive, as the returns from low-risk cash and bonds fall. A worthwhile Chinese stimulus package could lift Asian markets and abrdn.
But is that income safe? Once yields hit double digits, they’re very shaky. abrdn has frozen its dividend at 14.6p for four years. Pre-pandemic it was 21.6p. This chart makes ugly reading.
Chart by TradingView
The dividend is now forecast to slip to just 0.9, which means earnings may be lower than the cost of funding shareholder payouts. It looks highly vulnerable to me.
I hold Legal & General, M&G and Phoenix, so have enough exposure to the sector. Even if I didn’t, I wouldn’t start with abrdn. The love will have to wait.
This post was originally published on Motley Fool
