Berenberg downgrades Standard Life, says Aberdeen merger offers little upside
Berenberg has downgraded Standard Life to 'hold' from 'buy' and cut the price target to 400p from 416p, saying the merger with Aberdeen Asset Management offers little upside and substantial risk.
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Earlier this month, Standard Life and Aberdeen announced that they had agreed the terms of an £11bn merger that will create one of the largest active investment managers globally, with £660bn of assets under management.
But Berenberg reckons the benefits, if any, rely more on a major change in fortune for Aberdeen’s funds than they do on any cost savings, and said the level of disruption that could be caused to Standard Life’s business is high.
"The strategic rationale for more scale at lower cost, product breadth, wider client coverage and greater diversification is reasonable in the context of a challenging market place for active fund managers.
"However, Standard Life Investments arguably already had reasonable scale in many core areas and a renewed focus on costs. It had invested much time and money in building diversification and its organic growth strategy in areas where it was underweight had shown early signs of bearing fruit. Continued disciplined execution of the existing strategy would have paid off, in our view, and carried less risk. Patience is a virtue that seems to be lacking in Standard Life’s boardroom."
Berenberg pointed out Aberdeen has seen worrying net outflows in the last three years, particularly in funds with high margins.
The bank's base case assumes net flows will gradually improve, but Berenberg said this may be optimistic.
In addition, it highlighted concerns that the integration phase will bring about unwelcome distractions, loss of focus and likely disruption of fund flows at both companies.
At 0915 GMT, Standard Life shares were down 1.3% to 375p.