Shares in Standard Life Aberdeen PLC (LON:SLA) were on the slide in mid-morning trading Tuesday after RBC downgraded the investment firm to ‘Sector Perform’ from ‘Outperform’ citing a “flagging” performance and a “less secure” dividend.
In a note, the Canadian bank said since the disposal of its “highly cash-generative” life insurance business, SLA was now having to rely solely on its asset management activities, whose revenues “rise and fall in line with prevailing market conditions”.
As a result of this reliance, analysts said the dividend policy would “come under pressure” as the cover from continuing operations in SLA’s interim results was just above 1x, meaning additional downturns in the market would likely reduce this.
RBC also said that the dividend would be put at risk due to the shrinking of SLA’s assets.
“An asset manager’s earnings are a function of its [assets under management], which are at the mercy of financial market levels, with equity markets a major factor. We forecast that SLA’s AUM will reduce by 9.4% [compound annual growth rate] between mid-2018 and end-2020”.
The bank added that it thought the group’s life insurance business had been sold “too cheaply” at a 21% or £0.8bn discount to what it was worth, with an additional headache for investors as “dividends for life insurers are more secure than they have ever been”.
RBC has the firm pegged with a target price of 260p.
Shares were down 3.8% at 220.3p.