Aberdeen is known as the Granite City. But it does not take a heart of stone to be unimpressed when looking at the recent performance of financial services giant Abrdn (LSE: ABDN). The Abrdn share price has sunk 28% in a year.
Could this present an attractive opportunity for me to add the company to my portfolio?
Behind the fall
I think the decline in the share price reflects long-standing concerns about the company’s business model and its ability to execute. Over a five-year period, the share price has fallen 43%. The financial services industry is highly competitive. At the interim stage, although the company reported increased adjusted pre-tax profit, assets under management fell. That suggests customers are not sufficiently attracted by what they feel the company offers them. I think that could continue to be a challenge in the future too, especially with the company’s adoption of its new name that attracted criticism for dropping the vowels.
But I think the share price fall overshadows some of the strengths of the business. Last year the company posted earnings per share of 38.5p. That was its best performance for years. It also means that Abrdn’s price-to-earnings ratio now stands at just over six. That looks cheap to me if the company is able to show continued strength in its business performance.
Yield appeal
After its share price fall, the company offers a dividend yield of 6%. That is not exceptional for a financial services provider – M&G and Direct Line offer higher dividends, for example. But it is still an attractive dividend in my view.
Admittedly the dividend has been going in the wrong direction. The final dividend was halved in 2020 and this year’s interim payout was kept flat. But the company reckons the dividend cut has made it sustainable. It has also said it plans to start growing the payout once it is covered 1.5 times by adjusted capital generation. I regard that as a fuzzy measure. But at least there is the prospect of future rises.
For now, the message is that the company is not looking to cut its dividend again. That could still happen, of course: these payouts are never guaranteed. But if they are maintained, then by buying at the current Abrdn share price, I should get a 6% yield. That could make the shares an attractive addition to my portfolio.
I am attracted by the Abrdn share price
The share price has traded close to its 12-month low in recent days. But I think recent business performance has been good in terms of profitability, the valuation looks attractive and the yield also appeals to me.
I do see ongoing risks here. The decline in assets under management could point to customer concerns about the skills of the company’s investment managers. That could hurt revenues and profits in future.
But I also see opportunity. At the current Abrdn share price, I would consider buying the stock for my portfolio.
Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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