Fund managers and investment platforms are not getting much love from investors this week after a spate of trading updates.
Yesterday, Hargreaves Lansdown PLC (LSE:HL.), which offers its customers the chance to trade in unit trusts (mutual funds), equities and other financial instruments, saw its shares dive from Friday’s close of 1,640.5p to 1,454.5p yesterday after its full-year results, despite boasting of a “record performance and exceptional growth”.
Meanwhile, serial disaster zone abrdn – we’re talking about the disappointing merger of Standard Life and Aberdeen Asset Management rather than the baffling name change from Standard Life Aberdeen to abrdn (although if the cap fits …) - claimed this morning to have made a strong start to its three-year growth plan.
If that’s the case, why are the shares down 3.1% at 288.4p and providing a convenient doormat for the rest of the Footsie constituents to wipe their feet on today?
Doing equally badly – its shares are also off 3.1% (at 230.7p) is M&G PLC (LSE:MNG) after its half-year results.
Its chief executive, John Foley, said the results “show good progress on our actions to reposition the business for sustainable growth”.
The share price reaction suggests the market begs to differ.
Like Hargreaves Lansdown, it could point to record performance, in M&G’s case institutional assets under management reached a record £89.7bn following net client inflows of £2.2bn, primarily from European clients.
For abrdn, however, inflows is almost like a foreign word (that it would probably spell nflws).
Net outflows in the first half of 2021 clocked in at a whopping £5.6bn but management’s excuse was that this included £3.7bn (net) of liquidity outflows, which it says are low margin and volatile in nature without explaining exactly what they are, other than to say they reflect corporate clients using their cash balances through the pandemic period.
So much for the past, what about the future?
As ever when trying to determine why shares have moved it is better to look forward rather than stare at the rear-view mirror.
For abrdn, it said that costs will continue to grow in the medium term as it continues to work to staunch the outflow of cash from its funds under management.
“Assets continue to leak out the door, but the flood has become a trickle. Positive trends in the wider market means total assets under management have held up well, and more assets in lucrative emerging market equity and property funds, together with a strong result in advisory, has boosted overall revenues. Meanwhile, lower costs, helped by the pandemic but also reflecting synergies from the 2017 merger, mean operating profits are flying,” said Nicholas Hyett, an equity analyst at Hargreaves Lansdown (yes, that Hargreaves Lansdown).
“However, there’s more work to do before abrdn is on really stable footing. Dividends continue to exceed profits and without the proceeds from selling stakes in HDFC and Parmenion, abrdn would have been eating into its capital reserves this half. The group’s planning a significant revenue inflexion by the end of 2023, and really that can’t come soon enough,” he added.
The merger of Standard Life and Aberdeen took place in 2017 and management seems to be indicating it will finally get to grips with the disastrous collaboration by 2023.
And how has it managed to do this? Essentially, by selling off the Standard Life part of the business.
Brilliant. No wonder these guys are sometimes called “masters of the universe”.
As for M&G, once part of the mighty Prudential, it demerged from the Pru in the second half of 2019 and was enjoying life as a listed company until the pandemic hit.
Its shares have largely recovered and are less than 10% off their pre-pandemic high but saying the performance has not been as disastrous as abrdn’s is a bit like Manchester United (TMP:.) boasting of finishing above Everton.
Today’s share price fall is probably because the assets under management figure of £370bn, although up 9.2% year-on-year, was below market expectations by about 1.5 percentage points.
Perhaps that’s because there have been fewer commuters being bombarded with unit trust adverts at mainline stations during the various lockdowns. No? Just me, then ...
M&G said it is “optimistic about the recovery in Retail Asset Management in light of continued action on investment performance, net inflows into our new generation of thematic funds and improved value-for-money for customers” but a nagging doubt exists for some onlookers that thanks to the popularity of meme investing, cryptocurrency speculation and to a lesser extent spread betting, a whole new generation of investors is looking to invest its meagre disposable income somewhere other than good old reliable unit trusts.
“Europe presents us with the most attractive opportunities over the next few years, both in retail funds and in institutional asset management. Our 20-year investment in brand and distribution in the region gives us a powerful platform for growth,” M&G said.
As for Hargreaves Lansdown, it could lay claim to being at the forefront of the previous “democratisation of investment”, with its online offering, often referred to as a “funds supermarket”.
Its shilling – that’s “shill” as in the fairground barker sense rather than the old 12 pence to a shilling sense – of Neil Woodford’s spectacularly unsuccessful funds a few years back damaged its brand but has not proved fatal.
That being said, net new business was lower than expected in the year to the end of June 2021 and like abrdn it too has been making noises about rising costs.
“We continue to see a risk of further de-rating, with catalysts being weak share dealing, low Net New Business, and higher costs. In our view, Hargreaves’ pricing structure remains unsustainable, and underpins its fragility,” Credit Suisse (NYSE:CS.) said.
The Swiss bank lowered its estimates following yesterday’s results, as did RBC Capital Markets, although RBC remains a fan of the stock.
“We retain our Outperform rating as we still see valuation upside in the shares, however, our conviction is dented. Whilst the business has delivered impressive asset and client growth through the pandemic, we now see the scalability as under question,” RBC said as it slashed its target price to 1,650p from 1,925p.