The last time I covered the Standard Life (LON:) (LSE: SLA) share price and its 8.6% dividend yield, I concluded that, considering all of the headwinds buffeting the company, it’s unlikely the stock will return to previous highs anytime soon.
However, following today’s asset management update from the firm, I’m now cautiously optimistic Standard Life is on the comeback trail. I think now could be an excellent time for risk-tolerant investors to snap up a few shares ahead of what could be a big rally for the stock.
Investor outflows have dogged Standard Life over the past three years. The asset manager reported £41bn of net fund outflows last year following £33bn in 2017 and the loss of a £109bn mandate from Lloyds Banking Group (LON:) (although, following a court battle, Standard Life has since retained the right to manage this contract).
The good news is, this trend seems to be coming to an end. According to today’s first-quarter assets under management and administration statement, total assets under management increased 3% to £568.9bn, up from £551.5bn at the end of 2018. Asset growth was helped by gross inflows of £3.5bn from the group’s partnership with Virgin Money (LON:). It also benefited from the acquisition of Asia-based real estate manager Orion Partners, which added £0.7bn.
In my opinion, these numbers seem to suggest Standard Life’s investor appeal is recovering, which is good news for earnings growth. Over the past 12 months, City analysts have been downgrading their growth forecasts for 2019, with analysts now expecting the company to report earnings per share of 19.8p for the year.
In May of last year, analysts had pencilled in an earnings target of 29p for 2019. Following today’s numbers, analysts could be inspired to go back to their spreadsheets and revisit their earnings estimates.
Share price recovery
I don’t want to jump the gun, but I think this could be the beginning of a substantial increase in the Standard Life share price, if the company continues to report growing assets throughout the rest of 2019. Rising assets under management will justify higher earnings which, in turn, will justify a higher share price, and we could see this chain of events play out over the next six to 12 months.
That being said, I should also note that Standard Life’s fortunes are tied directly to the market environment. If the current round of market volatility continues, then investor flows could reverse, and this would hamper the firm’s return to growth. Unfortunately, this is something investors don’t have much control over.
Still, on balance after a rough few years, things seem to be looking up for Standard Life and it’s investors. If the company continues to attract assets over the next few quarters, I believe there’s a strong chance the shares could recover some of the ground they have lost over the past two years. The stock’s 8.6% dividend yield only adds to my belief investors buying today could see a positive return.
Rupert Hargreaves owns shares in Standard Life Aberdeen. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019
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