Standard Life Aberdeen Half Year Report

[idpickering]

From part 1 of 4

Accelerating the share buyback programme

· Initial tranche of £175m to commence in the next few days, as part of the capital return2 of up to £1.75bn

Sale2 of insurance operations completes transformation to a capital light investment company

· Enhancing our strategic partnership with Phoenix Group ("Phoenix")

Improving momentum in gross inflows diversified across asset classes and channels

· Gross inflows of £38.0bn (H1 2017: £39.5bn, H2 2017: £36.0bn) including increase in flows from Phoenix

· Net outflows remain a challenge in a tough market but were concentrated in a narrow range of strategies

· Increased pace of innovation in "new active" investment solutions with the launch of 20 new funds (FY 2017: 22) and targeted bolt-on acquisitions strengthening our capabilities in private markets, ETFs and closed ended funds

· We have a good and diverse pipeline including further significant business transitioning from Phoenix

Profitability supported by cost control

· Adjusted profit before tax from continuing operations of £311m with improvement in the cost/income ratio to 69.4% (FY 2017: 70.6%) and continued focus on reducing the ratio to 60% over the medium term

· Now targeting a total of over £350m of savings including merger related cost synergies of £250m as well as efficiency savings from a simplified global operating model in excess of £100m

Financial strength supporting investment for growth and progressive dividend policy

· Strong holding company cash position of £1.0bn (FY 2017: £1.2bn) excluding net cash proceeds of c£180m to be received following the successful IPO of HDFC AMC

· Interim dividend up 4.3% to 7.30p

And later;

Generating cash and delivering returns to shareholders

Adjusted cash generation after tax of £199m (H1 2017: £222m) reflects lower adjusted profit. The Board has proposed an interim dividend of 7.30p per share, an increase of 4.3% maintaining our progressive dividend policy.

The general meeting on 25 June 2018 approved the return of up to £1.75bn in aggregate to shareholders, subject to necessary regulatory approvals. This includes a return of capital of £1bn via a B Share Scheme with an ordinary share consolidation, and a return of up to £750m by a share buyback programme. We are commencing the first tranche of £175m of the share buyback programme in the next few days. Completion of the proposed sale to Phoenix is expected in Q3 and the B Share Scheme will commence soon after completion.

https://www.investegate.co.uk/standard- ... 00139890W/

Part 2 - https://www.investegate.co.uk/standard- ... 00199889W/

Proposed dividend

We propose an interim dividend for 2018 of 7.30p per share which is an increase of 4.3%. This will be paid on 25 September 2018 to shareholders on the register at close of business on 17 August 2018. The expected cost of the interim dividend is approximately £214m

Part 3 - https://www.investegate.co.uk/standard- ... 00229880W/

Part 4 - https://www.investegate.co.uk/standard- ... 00299875W/

[blobby]

I can confidently say that I don’t understand this sector. With a quick glance at the results, I’m none the wiser and can only say that they look mixed and I can’t really find anything to take fright over or fall in love with. I also hold Phoenix which is perhaps why relaxed with the recent large transaction between them and the so-called partnership.

Perhaps I should aspire to be a Doris on all my shareholdings and I’m getting close with Standard Life Aberdeen. With an increasing dividend I should probably not worry any further on this whatever the share price movements?

[idpickering]

I can confidently say that I don’t understand this sector. With a quick glance at the results, I’m none the wiser and can only say that they look mixed and I can’t really find anything to take fright over or fall in love with. I also hold Phoenix which is perhaps why relaxed with the recent large transaction between them and the so-called partnership.

Perhaps I should aspire to be a Doris on all my shareholdings and I’m getting close with Standard Life Aberdeen. With an increasing dividend I should probably not worry any further on this whatever the share price movements?

I don't think you're alone with this blobby. I do try to be a bit Doris-like with all my holdings, and believe that less is more when thinking about interfering with my HYP.

Ian.

[Dod101]

I think the problem with SLA at the moment is that it is in a state of flux what with the merger with Standard Life and Aberdeen, and now the sale of the life business to Phoenix so there is no pattern and no possibility of a sensible comparison from one year to the next. I think it will take at least another year before we can make any sensible comparisons, and none of the companies involved or their businesses is quite the same as it was . Although I guess all the assets are still there, the rearrangement of the ownership and the management of the two entities now left standing (SLA and Phoenix) will need time to sort it out.

Meanwhile the SLA yield is very good at 6.5% or so.

Dod

[peterh]

Meanwhile the SLA yield is very good at 6.5% or so.

Dod

The share price is down by almost 30% since the start of 2018 - but we don't worry about that here!

[Dod101]

Interesting. I do not follow SLA but that would explain the high yield. I am not really surprised because of all the factors that I mentioned, plus the fact that I think Standard Life lowered itself to the level of Aberdeen with the merger. Grafting a good company on to a poorer one does not necessarily improve the mix. Personally I prefer Schroders as a fund manager if that is what we are looking for.

I have never held Aberdeen or Standard Life but hold Schroders.

Dod

[blobby]

The share price is down by almost 30% since the start of 2018 - but we don't worry about that here!

OK, I’ll bite

It terms of the HYP principles, having bought the shares we probably should not “worry” about the shares we have bought. However, this is the Practical board and I know that in practice I do worry about these things.

In terms of building an HYP, if the share price has dropped by 30% (not to mention a dividend increase) and if other things are OK, then SLA will have moved up the priority list of potential shares to purchase.

[idpickering]

The share price is down by almost 30% since the start of 2018 - but we don't worry about that here!

OK, I’ll bite

It terms of the HYP principles, having bought the shares we probably should not “worry” about the shares we have bought. However, this is the Practical board and I know that in practice I do worry about these things.

In terms of building an HYP, if the share price has dropped by 30% (not to mention a dividend increase) and if other things are OK, then SLA will have moved up the priority list of potential shares to purchase.

I did find some spare cash the other day and topped up my SLA holdings. But that’s it with them for now.

Ian.

[IanTHughes]

The share price is down by almost 30% since the start of 2018 - but we don't worry about that here!

OK, I’ll bite

It terms of the HYP principles, having bought the shares we probably should not “worry” about the shares we have bought. However, this is the Practical board and I know that in practice I do worry about these things.

Assuming that you mean that you worry about share price as opposed to dividend cuts, then the obvious question is why do you worry?

Put another way, what damage is done by falling share prices to the income of an HYP Portfolio? HYP is an Income Portfolio that is predicated on not selling. Holding forever and a day. Unless you are intending to sell at some point in the future, or are looking for a specific capital value on a future date, what harm does a falling share price do to you?

If you are looking to maintain or create a specific capital value in the future, or to achieving a specific total return, which is more important to you than the Income generated, then do not follow the HYP Strategy. Sure, you may hold many similar shares, high yield can be a mark of good value as well as income, but the overall aims of your portfolio are not in line with HYP in my view.

But don’t tell the HYP Income seekers that they too should be worried about capital value or total return. To them price fluctuations are of supreme indifference and indeed, for those still building their HYP, a lowering share price of an otherwise solid HYP candidate can lead to achieving a better income outcome.

I first bought a holding of Aberdeen Asset Management (ADN) in January 2016, since when the dividend increased year on year. After merging with Standard Life (SL) to create Standard Life Aberdeen (SLA), the dividend continued to increase. Now, after disposing of the Life business, the dividend has increased again. The value of SLA has indeed fallen in value by about 30% since the beginning of the year. Maybe it is as a result of the change in focus from Life Insurance to Investment Management, I don’t know for sure. But with an increased interim dividend and the current high yield on offer, SLA is rather tempting. Certainly nothing to “worry about” in my view.


Ian

[mrbrightside]

The share price is down by almost 30% since the start of 2018 - but we don't worry about that here!

It terms of the HYP principles, having bought the shares we probably should not “worry” about the shares we have bought. However, this is the Practical board and I know that in practice I do worry about these things.

Assuming that you mean that you worry about share price as opposed to dividend cuts, then the obvious question is why do you worry?

I run an HYP adhering to the core PYAD principles (never tinker, LTBH, Doris). It's a long term experiment (started in 2003) to see whether a HYP could provide enough income for my retirement whenever that comes. HYP appeals to me because I am lazy. Very lazy.

While I quite enjoy maintaining a spreadsheet of dividend income, I view the periodic (quarterly) task of investing dividend income as a minor, time consuming inconvenience (HYPTUSS with some 'rules) and occasionally I might also sell a share (typically prior to corporate actions) to avoid small or foreign based holdings.

I hold Standard Life (and held Aberdeen Asset Mgmt) and while I can look at the increasing dividend stream, I view the falling share price with some trepidation. Not because I'm obsessed with the capital value but because, more fundamentally, it seems obvious that a falling share price over a sustained period and an increasing dividend seem mutually exclusive.

But then I think well, what else would I buy that's immune from a similar scenario and then decide to leave well alone.

Mainly because I've experienced similar falls with, for example, the 'holes in the ground' that fell out of favour, with falling share prices coupled with decreased (or suspended) dividends but subsequently recovered. For example, Anglo American [AAL], originally purchased back in 2003, is one of my best (capital) performers.

To paraphrase, PYAD, infinity is a long time.

[peterh]

The share price is down by almost 30% since the start of 2018 - but we don't worry about that here!

OK, I’ll bite

I wasn't trying to be controversial, or even provocative. Just adding a footnote to Dod's comment about the dividend %age rate.

FYI, I hold SLA and am not considering selling

[OLTB]

But don’t tell the HYP Income seekers that they too should be worried about capital value or total return. To them price fluctuations are of supreme indifference and indeed, for those still building their HYP, a lowering share price of an otherwise solid HYP candidate can lead to achieving a better income outcome.


Ian

Just on this point Ian - I am building my HYP and frequently top up those HYP constituents that have fallen out of favour with Mr Market. I try to summon the spectre of Doris and have a slightly laissez-faire attitude, but my heart still beats a little faster than normal when I press the 'buy' button (will it be another Carillion)…

However, when, at some future point Mr Market feels the opposing view, these buys can be pleasing from a capital perspective as well (not always, but sometimes). I'm only human and even though my HYP is for future income, I do like to see my holdings in blue rather than red!

Case in point - I topped up GSK a few times over the past 12 months - I was down at the time in capital terms but the yield was decent. Doris duly summoned and button was pressed to buy - I am now, today, up in capital terms 0.72%!. That blue looks nicer than red, even though I'm not meant to be bothered by it

Cheers, OLTB.

[Dod101]

But don’t tell the HYP Income seekers that they too should be worried about capital value or total return. To them price fluctuations are of supreme indifference and indeed, for those still building their HYP, a lowering share price of an otherwise solid HYP candidate can lead to achieving a better income outcome.

Taking up OLTB's point, all HYPers are by definition income seekers. Anyone, HYP income seeker or not, is living in a fool's paradise if to them price fluctuations are a matter of supreme indifference, particularly when the price fluctuation is downwards. Even pyad did not say that.

I prefer to see the dividend rising and over time I am quite confident that it is very likely that the share price will rise too. But to concentrate solely on the dividend to the exclusion of all else? That is very unimaginative and possibly dangerous.

Dod

[IanTHughes]

But don’t tell the HYP Income seekers that they too should be worried about capital value or total return. To them price fluctuations are of supreme indifference and indeed, for those still building their HYP, a lowering share price of an otherwise solid HYP candidate can lead to achieving a better income outcome.

Taking up OLTB's point, all HYPers are by definition income seekers. Anyone, HYP income seeker or not, is living in a fool's paradise if to them price fluctuations are a matter of supreme indifference, particularly when the price fluctuation is downwards. Even pyad did not say that.

I prefer to see the dividend rising and over time I am quite confident that it is very likely that the share price will rise too. But to concentrate solely on the dividend to the exclusion of all else? That is very unimaginative and possibly dangerous.

I hold Standard Life Aberdeen (SLA) and as pointed out previously in this thread, the share price has declined close to 30% so far this year. I am running an HYP with the aim of delivering an increasing portfolio income over time. In the absence of any news about SLA indicating a possible slip in profits or, horror of horrors, a dividend cut, and following a rise in the interim dividend, why should I be concerned about the drop in share price?

Why do you believe that the drop in share price might be dangerous to my aim of enjoying an increasing portfolio income over time? What will now happen that would not have happened had the price remained constant or even risen? Why should I worry about the share price when it is my intention never to sell?

All I can see is that my Portfolio's Forecast Income has increased and the yield offered by SLA has also increased, giving me another choice for further investment. Why do you see that as "living in a fool's paradise"?


Ian

[blobby]

OK, I’ll bite

I wasn't trying to be controversial, or even provocative. Just adding a footnote to Dod's comment about the dividend %age rate.

Hi peterh, I probably chose to read into this something controversial which you did not mean, but I'm not trying to criticise your comment and thanks for posting it.

[peterh]

Hi peterh, I probably chose to read into this something controversial which you did not mean, but I'm not trying to criticise your comment and thanks for posting it.

No problem blobby!

However, after getting my fingers singed, if not burnt, by Carillion, I'm conscious that a falling share price and a rising yield (which will happen naturally if the dividend amount doesn't decrease) will propel the share up the HYPTUSS rankings and make it seem more attractive for a top-up.

Now, I'm not suggesting that SLA is comparable to CLLN, but I tend to see risk in places I didn't before that episode (and maybe where it doesn't exist!). I've thought of topping SLA up several times this year, but I think I'll wait it out for a while longer.

[Clitheroekid]

Anyone, HYP income seeker or not, is living in a fool's paradise if to them price fluctuations are a matter of supreme indifference, particularly when the price fluctuation is downwards.

I have what might loosely be described as a HYP as one of several investments. It consists of (usually) boring but safe companies which I buy mainly for their yield, such as BP and Shell, ITV, Marston's, Persimmon, HSBC etc, and yes, there's a substantial holding of SLA, mostly acquired around the time they floated.

The share price of these investments is not by any means a matter of supreme indifference - quite the opposite. In fact I often hope that the price will fall, as I've chosen to reinvest the dividends on all of them, so the lower the price at dividend time the more shares I can add.

I realise that this lazy option is somewhat frowned upon by people on here, but it suits me very well, and has provided me with excellent returns over the years.

Of course this philosophy has its limits. It obviously wouldn't apply if there were a sudden catastrophic fall, as with Carillion or Provident Financial. Such a drastic fall often means not only the end of dividends, at least for the time being, but perhaps a forced sale and substantial - perhaps total - loss of capital.

But in the case of SLA I really have no serious concerns at all. They are a very large, market leading company who appear to do boring things fairly well, and they operate in a sector for which there is likely to be a continuing high level of demand. They also have the advantage of a substantial `moat' to limit new entrants.

So the 30% decline in the share price is, at least for me, to be welcomed with open arms, particularly when it's accompanied by an increased dividend.

Of course I'm confidently expecting that if I ever want or need the capital the share price will suddenly rise to stratospheric levels as everyone realises what a bargain it is!

[Dod101]

The problem is CK, it is all very well hoping the price will fall so that you can buy more shares with your dividend reinvestment but that is only one side of the equation. You need to know or try to understand why the price has fallen. I would personally rather reinvest in a share with a rising price, so that the capital value of my investment keeps on going upwards. There is something illogical if a company keeps raising its dividend and yet the price keeps falling. The market is telling us that it is not happy with the story and more often than not it is correct. I have no idea if that applies to SLA and have given my thoughts on this share earlier. I do not hold it so I am not very bothered but I will watch it with interest.

I certainly think there are better shares in the sector, but who knows? Standard Life was a very well regarded Scottish life company and since the merger with Aberdeen has become a pure fund manager. Any successful life insurer needs to be a good fund manager and have lots of capital behind it, and they seem to have successfully divested themselves from the guarantees associated with a life insurer and the capital requirements so maybe that will work. Who knows?

Dod

[Clitheroekid]

The problem is CK, it is all very well hoping the price will fall so that you can buy more shares with your dividend reinvestment but that is only one side of the equation. You need to know or try to understand why the price has fallen. I would personally rather reinvest in a share with a rising price, so that the capital value of my investment keeps on going upwards. There is something illogical if a company keeps raising its dividend and yet the price keeps falling. The market is telling us that it is not happy with the story and more often than not it is correct.

Yes, of course this is correct, and it's why I said the philosophy has its limits. If the share price carries on declining over a long period relative to the market generally then I would agree that it's probably a dying company, and no amount of dividends will make up for a complete loss of capital.

But there are many HYP type shares where the SP does fluctuate considerably - the oil majors are a good example - but that carry on churning out high dividends and don't appear to present any realistic risk of disappearing. And I take the view that SLA is one of these.

The 30% drop in the SP does not indicate to me that there are any serious problems with the company, and it's noticeable that there is zero shorting, often an indicator of problems that are known to insiders but not generally.

So yes, IF the price were to keep on falling at this rate for another year then I would certainly be concerned. But I very much doubt that it will. My personal view is that the upside potential is significantly greater than the downside, and if I had any spare cash for this part of my portfolio I'd be very tempted to increase my holding.

[idpickering]

The 30% drop in the SP does not indicate to me that there are any serious problems with the company, and it's noticeable that there is zero shorting, often an indicator of problems that are known to insiders but not generally.

So yes, IF the price were to keep on falling at this rate for another year then I would certainly be concerned. But I very much doubt that it will. My personal view is that the upside potential is significantly greater than the downside, and if I had any spare cash for this part of my portfolio I'd be very tempted to increase my holding.

All this chat reminds me of when I doubled my holding in RDSB in 2016 when they were down in sp terms, and I'm glad I did, as they've risen well ever since. As this is HYP, we should be thinking long term anyway, but if I can pick up a bargain, for that long term hold, I will. As I said before, I made a top up of my SLA holdings last week, so am unlikely to buy more right now, but I do think they're in the "bargain items bucket" currently.

Ian.