After a long absence, Aberdeen (LSE: ABDN) shares are heading back into the FTSE 100 following the latest quarterly reshuffle. The return to the blue-chip index signals a remarkable turnaround for a stock I first started buying when the dividend yield topped 11%.
The shares have rallied strongly since then, yet the business still faces persistent fund outflows and a dividend that hasn’t grown for years.
So is this turnaround now fully priced in, or could there be more to come?
Diversified model
The biggest reason I remain positive is that many investors still view Aberdeen primarily as a traditional asset manager. That helps explain why so much attention remains focused on adviser outflows and the challenges facing active asset management.
Yet increasingly, the growth engine sits elsewhere. interactive investor (ii) has quietly become one of the UK’s most successful investment platforms. Its flat-fee pricing model continues to attract customers, particularly larger investors and SIPP holders looking to avoid percentage-based charges.
The numbers remain impressive. Customer numbers rose 14% last year to more than half a million, while SIPP customers jumped 30%. Net inflows climbed 28% to £7.3bn, helping assets under administration rise 26% to £97.5bn.
More importantly, growth is translating into profits. Adjusted operating profit surged 34% to £155m, while revenue increased 19%. The platform continues to scale efficiently despite ongoing investment.
In my view, this is the part of the story the market still underappreciates. While the legacy asset-management business remains under pressure, ii continues to take market share and is becoming an increasingly important contributor to earnings.
Story of two halves
The biggest challenge remains Aberdeen’s Adviser business. While ii has become the group’s growth engine, I suspect a major re-rating of the shares will only happen once management proves it can return Adviser to sustainable growth.
That matters because this remains a significant business. Aberdeen serves around half of all UK independent financial advisers and operates in a structurally growing market.
The headline numbers still look underwhelming. Net outflows were £0.6bn in Q126, unchanged from a year earlier.
However, there are signs conditions may be stabilising. Gross inflows rose from £1.7bn to £1.9bn, suggesting adviser activity remains healthy even as elevated redemptions offset that progress.
Management has already taken action. Last year it introduced a new pricing structure to attract more advisers onto the platform, albeit at the cost of lower short-term revenue.
More recently, a new chief executive was appointed to lead the division, while key service teams are being brought back in-house to improve the client experience.
There are also early signs of traction elsewhere. The group’s newly launched SIPP proposition has attracted around 3,000 customers since launch. It’s still early days, but if Adviser can move from outflows to growth, it could provide a powerful second leg to Aberdeen’s turnaround story.
Bottom line
I’ve been adding Aberdeen shares to my own portfolio in recent months as evidence mounts that outflows are stabilising. Combined with the continued success of ii, I think the turnaround story still has further to run. If Adviser returns to sustained inflows, a meaningful re-rating could follow. That’s why I see it as a stock to consider.
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Andrew Mackie owns shares in Aberdeen.
