In a note to clients on UK asset managers, Barclays downgraded its stance on SLA to ‘equal weight’ from ‘overweight’ and removed it as a “top pick”.
The bank also cut its target price to 295p from 338p.
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“While there remains clear potential for the business and a significant amount of value unrealised in its balance sheet, we struggle to see either of these elements being realised in the next 12 months despite the recent management adjustments,” Barclays said.
Barclays said the successful delivery of potential from strategic options could offer meaningful upside to the share price but it remains cautious over the achievement.
Key areas of that potential include: improving the investment performance, refreshing the product range, profiting from a stake in Phoenix, realising value from the UK financial platform market, further cost cuts, crystallisation of value from India assets and effectively managing excess capital.
However, Barclays said outflows continue to weigh on SLA’s key metrics due to performance issues in historically important products.
Lloyds and its Scottish Widows pension business last year announced plans to pull assets worth £100mln from SLA.
On SLA’s relationship with Phoenix, Barclays said the company has a “clear ability to benefit from further development at Phoenix through the value creation of its stake and the additional assets that could arise from Phoenix’s business development”.
Last year, SLA offloaded its insurance arm, Standard Life Assurance, to Phoenix for £3.28mln, as part of a strategy to streamline the business after Standard Life and Aberdeen merged. As part of the deal, SLA took a 20% stake in Phoenix.
However, Barclays said the potential scale of the benefit of the relationship between SLA and Phoenix remains uncertainty.
Following the disposal of Standard Life Assurance, the group has been reconfiguring its balance sheet but Barclays said the process remains ongoing with the exact level of excess capital at SLA continuing to fluctuate.
“Simplifying and cleaning up the balance sheet would provide greater comfort over the dividend per share yield and the future resources of the business.”
Barclays also noted that SLA’s plan to adjust its product range remains a work in progress.