Bernstein upgrades Standard Life Aberdeen, says selloff is 'overreaction'
16-02-2018 15:04
Bernstein upgraded Standard Life Aberdeen to 'outperform' from 'market perform' following the selloff in the previous session and on the back of year-to-date weakness in the stock, but cut its price target to 430p from 460p.
The company said on Thursday that it could lose £109bn of Scottish Widows and Lloyds Banking Group assets under management, prompting a big drop in the share price which Bernstein called an overreaction.
"SLA reports FY17 earnings on 23rd February, and we think that if the rest of the business looks OK, and management provides investors comfort that it could shed some cost related to SW assets, the shares could get back on track after this sharp selloff," said Bernstein.
Bernstein said that while it's not a given that Scottish Widows and Lloyds will terminate the agreement, it is likely. As a result, the bank has decided to reflect the loss of assets under management and the related estimated earnings impact in its model. The bank also said it was taking the opportunity to mark-to-market for moves in asset prices and in the valuation of HDFC Life. The net result of that is the reduction in the price target.
Even in its most punitive scenario, in which SLA loses all of the Scottish Widows revenue but is unable to shed of the related costs, Bernstein still sees 16% upside. In its base case - in which SLA can shed costs over three years equal to half the revenue associated with Scottish Widows assets - it sees 19% upside.
At 1540 GMT, the shares were up 1.4% to 364.90p.
