Standard Life Aberdeen cuts dividend by a third after profits fall

Standard Life Aberdeen has cut its dividend by a third after profits fell last year, but the new chief executive Stephen Bird has promised a rapid return to growth and set out new targets for revenues and costs.

The Edinburgh-based asset manager chopped its full-year dividend to 14.6p a share and indicated that payouts to shareholders would not increase until its performance improved.

SLA’s share price fell 7.2 per cent to 296.1p in response on Tuesday.

The reduction in the dividend was expected by some analysts but it is the first cut since the predecessor insurance company Standard Life was demutualised in 2006 before its flotation on the London Stock Exchange.

David McCann, an analyst at Numis in London, said the cut was “disappointing” and noted that future payouts were likely to remain flat for some time because SLA’s management had said dividends would depend on future capital generation.  

The UK’s second-largest asset manager reported adjusted pre-tax profit of £487m for 2020, down 16.6 per cent on the previous year after fee-based revenue shrank to £1.4bn from £1.6bn. The decline in pre-tax profits and revenues was less severe than suggested by the consensus forecast from analysts.

Customers have been pulling their money out of SLA funds in recent years, but net outflows were reduced last year to £29bn, compared with £58.4bn in 2019.

Outflows over the past two years have been swollen by the withdrawal of a tranche of money SLA previously ran for Lloyds Banking Group, after their partnership ended in 2018. Excluding this, SLA recorded net outflows of £3.1bn, compared with £17.4bn in 2019.

Assets under management and administration fell from £544.6bn at the end of 2019 to £534.6bn.

Bird, who took over as chief executive in September, said SLA’s business had shown “growing momentum in the second half of 2020 with improved investment performance and flows”.

He said his priority was to return the business to revenue and earnings growth and to reduce SLA’s cost-to-income ratio from 85 per cent to 70 per cent.

SLA’s new target is to deliver high single-digit revenue growth over the next three years.

McCann said these targets were the kind of performance that an investment management business of SLA’s size should achieve.

“The actual details on how management aim to achieve this appear fairly high level at this stage. It remains a judgment call on whether shareholders believe that this [new] management can achieve these aims,” he said.

Haley Tam, an analyst at Credit Suisse in London, said SLA’s shares were still trading on a higher valuation than the average for other European asset managers even after the new revenue growth and cost targets were factored in.

“The recovery story looks compelling but it is more than reflected in the current share price,” said Tam. Credit Suisse has an “underperform” rating and a 250p share price target over the next 12 months.