The £11bn merger – which has created the second largest fund manager in Europe – officially completed yesterday but Barclays analyst Daniel Garrod can already see the benefits.
Standard Life Aberdeen is targeting cost savings of £200mln a year from the merger which Garrod thinks is more than achievable.
“£200mln of cost synergies equates to c.11% of combined cost base and 18% of pro-forma profits,” he explained in a note to clients this morning.
“The incremental detail supplied around realisation timeline, split by area and the fact that dis-synergies to date appear minimal makes this total more convincing, in our opinion.”
Standard Life’s Global Absolute Returns Strategies fund had a well-documented difficult year in 2016 but Garrod thinks the “improving momentum” behind the flagship fund bodes well, as does the encouraging performance of Aberdeen’s Global – Emerging Markets fund.
“Whilst it will take time for the 2016 underperformance to drop out, 2017 performance to date is positive with c. 2.1% [up] over one year. Aberdeen’s gem fund is up 16% over one year to end July and c.2% over three years, and has returned to positive inflows [in the first quarter] at £0.66bn.”
Attractive valuation compared to peers
In addition to the M&A synergies and the potential for flow recovery in two key funds, Garrod reckons all the metrics point to the new enlarged group being undervalued when compared to its peers.
“On our combined numbers, we estimate SLA is trading at 12.5x 2018 PE [price-earnings] vs ~15.5x average for its peers. In addition, SLA has attractive optionality for additional valuation upside from the IPO of its Indian JV and possible sale of its UK annuity book.”
Standard Life Aberdeen shares were up 1.9% to 432p in mid-morning trade on Tuesday.