Standard Life - successfully riding the market changes

Standard Life (SL..L): The most eye-catching thing in today’s interims, to 30^th June 2015, is that 95% of income is now fee-based. As the traditional annuity market implodes this hasn’t come a moment too soon. The acquisition of Ignis last year has completed the shift from old-style Scottish Life office to modern asset manager and investment solutions provider. This even extends to the internal appointment of ex-stockbroker Keith Skeoch as the new CEO, after David Nish’s slightly unexpected retirement. In these numbers fee based revenue jumped 17%, whilst AUM were £302.1bn, against £296.6bn at year-end and a year ago’s (pre-Ignis) £223.9bn.  Net inflows were £3.4bn, although adjusted net inflows into their fee-based offers were £6.4bn. Ignis did lose a £1.7bn mandate, but this was low margin. In the UK workplace pensions and wrap platform take-up both performed well, whilst their Europe, India and China exposures all saw positive inflows. Operating profit was up 6% to £290m, with the operating expense ratio trimmed by 5bps to 42bps of AUM. Dropping down to the bottom line, profit after tax was £69m, a drop from £196m in the first half of last year, mainly due to one-off charges in Hong Kong and Singapore as well as a UK defined benefit staff pension fund charge and Ignis integration costs. The capital position after a busy year remains strong with the IGD surplus at £2.6bn against £2.9bn. Re-iterating their progressive dividend policy the board has set the interim dividend at 6.02p, a useful 7.5% uplift.

With the shares at 440p, eps consensus of 25.2p for this year is a PE of 17.5x. After the rise in the interim dividend a similar hike at the final would mean a total around 18.3p, for a yield of 4.2%. As Ignis beds in and they drive out £50m of cost by 2017, analysts have slightly stronger growth penciled in for 2016. Given all the changes in the UK savings market along with their overseas exposure, Standard Life look set for a period of sustained steady growth. The next wave of proposed changes to UK pensions may well cause more market-place turbulence, but will not change the need for financial provision in an aging population. When I last wrote on the shares in September last year, I was positive on them at 415p, despite the impending uncertainty of the Scottish independence referendum. They might be above that level now, but that political risk has abated and they are well off their top for the year of 505p. I think that many long-term income growth investors will see this as a decent opportunity to clamber on board. (Neil Cumming^, 4^th August 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower