In particular, HSBC points to a 33% earnings discount currently for Standard Life to UK asset managers overall, while the enlarged group will offer a pro-forma dividend yield of 5.4% in 2017 that can grow at 10% per year until 2019.
The merger builds scale, diversifies both companies’ businesses and helps offset revenue and cost pressures, said the broker.
Savings of about £200mln will boost operating profit margins with the cost:income ratio set to reduce to 56% in 2019 versus 63% in 2016, though this forecast may be conservative suggests HSBC.
There are also signs that outflows from funds managed by both companies may be easing with an improvement in the performance of Standard Life’s flagship fund and money moving back into emerging markets.
At present, both share prices underestimate the merger synergies concludes HSBC, while assuming no growth in future at Standard Life.
Upgrading from hold, its new target prices are 350p for Aberdeen Asset and 460p for Standard Life, or potential upside of about 13% for both shares.