Berenberg feels Standard Life is 'not that cheap', cuts target
Analysts at Berenberg asked themselves on Thursday just how cheap Standard Life Abderdeen is and duly lowered their target price.
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In a research not entitled: "How cheap is Standard Life Aberdeen, really?", the analysts acknowledged that the shares were a consensus 'buy', noting that 80% of sell-side analysts - with an average 442p price target - believed the group was "too cheap", implying 39% upside.
The so-called 'buy-side' appeared to agree, given that there wasn't a single FCA-disclosable 'short' position on the stock.
However, Berenberg felt Standard Life was "not that cheap" in terms of earnings, saying the supposed undervaluation of the shares was not immediately apparent to them.
Even allowing for the planned B-share issue and buyback, the group's shares were trading in line with those of its peers, something the broker said was "generous" given the group's very large execution risks and its lower growth expectations of 8% versus the 11% predicted at its peers.
Berenberg believed that Standard Life would be cheaper than its peers if one was to assume that parts of the business were expensive, highlighting the fact that in order to find under-valuation the group, investors would need to accept the premise that earnings-based valuation approaches fail to capture the full value of the group.
Namely, using a 'sum-of-the-parts' approach to valuation, they would need to accept that the Indian life business was worth 72 times' profits and the Indian asset management arm worth 40 times' earnings.
Standard Life's financial statements "will be complex for most of this year", as the group works through its various restructuring plans, but Berenberg expected investors to react to the earnings opacity by requiring a discount to its SOTP "fair value".
Amidst the uncertainty, Berenberg said investors were also likely to focus more on transparent measures of value - the dividend yield, in particular.
With this in mind, the broker's 12-month price target, which it cut from 460p to 360p, assumes the group trades at the same 12% discount to SOTP as a third-quartile investment trust and at a price that leaves the stock in the top decile of the FTSE 100 in terms of dividend yield.
"With greater upside seen elsewhere in the sector we remain 'hold' rated; our price target is cut to 360p."