3 reasons to buy abrdn shares in 2023

At abrdn (LSE: ABDN) share price has risen 40% since the start of October. After a five-year slump, have we seen the bottom of these troubled asset managers?

abrdn’s rebound meant the company rejoined the FTSE 100 at the end of last year. The stock also offers a market-beating 7.5% dividend yield, which it expects to maintain.

There are still some risks for investors. But on balance, I abrdn Shares certainly have some attraction at the current level. Here’s how I see the stock as a potential buy in 2023.

No more bad news?

When Standard Life merged with Aberdeen Asset management in 2017, investors hoped the combination would create a power asset manager with economies of scale.

The reality is that combining these two businesses only creates new problems.

Between the start of 2018 and June 2022, Abrdd’s assets under management fell from £608bn to £508bn. Profits have been inconsistent.

However, the situation is changing and recovery plans are still underway.

Since taking charge in 2020, CEO Stephen Bird has led plans to streamline the group’s fund management operations, invest in wealth management, and create a clear capital return program.

Progress can be richly rewarded

Right now, I believe the market is watching carefully to see if Mr. Bird can keep his promise.

A lot of bad news has priced in this stock. We can see this from the abrdn dividend yield of 7.5%. Competitors such as Jupiter and Liontrust both offer a yield of around 6%. FTSE 100 peers Schroders offer only 5%.

If abrd results improve, I think the stock can do well.

For example, a 25% increase in the stock price will result in a stock dividend of 6%, based on current payouts.

I think it is a reasonable scenario for the next 12-18 months, although it is certainly not guaranteed.

Too cheap to notice?

Asset management stocks are not very popular right now. The market that collapsed last year caused fee income to drop, as asset values ​​fell and investors pulled cash.

2023 isn’t necessarily going to be any easier, but even so, I think abrdn looks cheap. Here is the reason.

In the firm’s half-year results, the company said it invested in the FTSE 100 insurance company Phoenix and an Indian financial group HDFC they are worth £1.7bn. In addition, management says abrdn has £0.6bn of excess capital.

Subtracting that figure from the group’s £3.8bn market cap shows that abrdn’s remaining funds business and wealth management platform – including Interactive Investor – is worth just £1.4bn.

That seems cheap to me, for a business that generates operating profits of around £300m and has over £500bn of assets under administration.

my verdict

The company is not out of the woods yet. There is an obvious risk of disappointment. This could lead to more management changes and uncertainty.

However, as it stands, the business offers an attractive 7.5% dividend yield, supported by some attractive investment assets.

If abrdn’s fund management and wealth operations can generate growth, then the stock could do well from current levels.