Aberdeen ends spending spree

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Aberdeen Asset Management has called a halt to the acquisitions that have helped assets under management balloon from £96bn ($145bn) in March 2009 to £171bn a year later. Instead, said Martin Gilbert, chief executive, the group would focus on organic growth and paying off debt.

Aberdeen interim results for six months to 31 March 2010
RevenuePre-tax profitEarnings per shareDividend
£294.9m£59.5m3.76p3.2p
↑53%↑41.6m↑3.24p↑14%

The Scottish group has made a string of high-profile purchases over the past couple of years, buying Credit Suisse’s long only equity funds and the contract to manage Bramdean Alternatives in 2009. Most recently it paid £85m to Royal Bank of Scotland for £13.5bn in hedge funds and funds of funds.

But as the group outlined a threefold rise in pre-tax profits in the six months to March, Mr Gilbert said the buying spree was done for now, in part because the prices of rival managers had risen significantly as markets have recovered.

In addition, regulatory and client pressure was mounting on all financial services groups to build up their balance sheets. Since last October Aberdeen has nearly halved net debt, including convertible bonds, to £96m against its equity base of £1.2bn.

Mr Gilbert still has ambitions to build up Aberdeen’s name in the US, but says he is focusing on expanding the distribution of existing global equity funds rather than acquiring a domestic US asset manager and competing head-to-head with US managers for business.

Aberdeen has allocated $1m for a six-week US marketing campaign to raise the profile of its closed-end funds. It is also opening a new office in Toronto. .

The asset manager reported profits before exceptional items of £92.6m against £33m in 2009. After exceptionals, amortisation and impairments, pre-tax profits rose from £17.9m to £59.5m. Earnings per share, fully diluted, were 3.76p, up from 0.52p last year, and the interim dividend is up 14 per cent to 3.2p helping to lift the shares 4 per cent to 143.4p on Tuesday.

FT Comment

Some peers call Martin Gilbert “Gilbert the consolidator” in recognition of the swift and even ruthless way he has bought assets in recent years. The name may have to change now that he has halted his campaign in the face of pressure to build up capital and pay down debt, and the sudden re-emergence of competing bidders emboldened by the economic turnround and new confidence in the savings market. Mr Gilbert is right to be wary of being sucked into paying high prices for businesses that are famously hard to integrate. But rivals question where Aberdeen’s earnings growth will come from once it has stopped buying in funds regularly. Aberdeen argues that it is building distribution and that margins are improving. And on almost 12 times forecast full-year earnings, the shares are not expensive relative to other asset managers. Nonetheless, the sceptics have a point.

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