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Valuation & Risks ( ABDN.L ) Disclosure / Price Chart(s) / Valuation & Risk
Fundamental Equity Research
We value ABDN primarily on a DCF valuation approach but also factoring in a sum-of-the-parts price/earnings valuation approach. Together these two approaches result in a total fair value of £2.00, which we set as our target price. 

For the DCF, we explicitly forecast net profit out to 2027E (distinguishing between abrdn core business and interactive investor) and use these as a proxy for cashflow. We extend these out for a further 8 years, with growing gradually slowing to 4-5.5% pa whilst also applying a profit margin decline (c.1% pa) to reflect the increasing maturity of the business. We then assume growth in cashflows into perpetuity at c.3.5% pa long-term growth rate, again at declining margins. We discount cashflows at a c13-13.5% cost of equity and then add the value of listed stakes (assuming c.8% haircut) and surplus capital.

For the SoTP, we add the value of ABDN's stakes and surplus capital to a SoTP valuation for the core operation at c12x P/E on 2Y forward earnings (based on c7.5x for Asset Management, c12.5x for Adviser, and c17x for interactive investor income - adjusting for excess interest income), based on listed peers, as well as c8.5x for net financing income.

Our High Risk rating reflects the potential operational challenges posed by significant fund outflows, and dependence on sum-of-the-parts value elements crystallising to support our target price. Indian stock markets are volatile, so the attributable value to stakes are potentially subject to significant change. Other risks include:

1) Lack of customer retention on the back book, margin compression on new business, and increasing competition amongst low-cost providers for asset growth. 

2) ABDN's success in "new active" strategies will be influenced by investment performance and efficacy of its new distribution channels, targeting retail investors. 

3) The group also has high earnings gearing to equity markets.

If these risks are greater or lower than we currently anticipate, the share price could deviate from our target price.

 

 

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