As coincidence would have it, Aberdeen Asset Management’s halfway figures came on the same day that Mario Draghi, president of the European Central Bank, warned that emerging economies could remain weak because their problems may be structural rather than fleeting. This would be bad news for the global economy and it would be a clear “sell” signal for Aberdeen.
The fund manager has been lessening its dependence on emerging markets by a handful of bolt-on acquisitions, but such assets still account for a quarter of the total. There have been signs of recovery: Aberdeen actually achieved a positive net inflow in the second quarter in emerging market equities, even if it was only £66 million, against a £900 million outflow in the first.
Aberdeen shares were up by about a third since mid-February, before they fell 22p to 276¾p after yesterday’s interims. Across the group there was improvement in the second quarter, even if this was the 12th consecutive one of net outflows.
Outflows from equities alone, the better test of performance, lessened to £3.5 billion, from £6.4 billion in the first. Plainly, given the performance of the markets, fee income was going to fall, with performance-related fees pretty much non-existent. All this hit the profit line and left underlying pre-tax profits 40 per cent lower at £162.9 million.
Aberdeen is a well-run operation that is largely in the wrong place. Emerging markets may well be undervalued, their valuation relative to developed markets at a 25-year low before the recent recovery, but investors will retain strong memories of the recent rout. There is only so much that the company can do, given its fixed cost base. It can hardly sack half its fund managers.
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For investors, the key is the dividend. This should be held for the current year and is about covered by earnings. Aberdeen has £218 million of surplus cash over and above regulatory needs. On that basis, the shares yield more than 7 per cent, but there can be no guarantees beyond this financial year, without any strong emerging market recovery. I would hold for the income, but beware any further downward lurch later in the year.
MY ADVICE Hold for income
WHY Any upsurge in Aberdeen’s fortunes will require a recovery in emerging markets, but yield is among the highest available
Just Eat
It doesn’t send out the best signal to other investors if you insist that your company is not properly appreciated by the market and then sell more than half your holding, as the chief executive and finance director of Just Eat did at the start of March, two years after the flotation. There are doubtless good personal reasons why they did so and there is no reason to suppose the company’s backers, speaking for 30 per cent, will be heading for the exit, too.
There was nothing in the first-quarter trading statement that should prompt such a course of action. The rate of growth is slowing, 46 per cent on a like-for-like basis in 2015 moderating to 41 per cent in the quarter, but this is to be expected as the company matures. Orders in the UK, two thirds of all revenues, were up by 40 per cent year-on-year and the company has agreed a one percentage point rise in commissions from restaurants it has signed to 13 per cent. It is hard to dismiss entirely the threat from rivals such as Deliveroo and most of the growth henceforth will come overseas.
Just Eat has failed to establish a No 1 position in the Benelux countries and will withdraw in due course, but it is a front-runner elsewhere. It is not yet profitable in recent entries such as Spain, Italy and Mexico, but it is getting there.
The shares, which floated at 260p and yesterday closed 18¾p up at 402¼p, are about where they were a year ago. Fast growth means that the shares sell on a more comfortable multiple than earlier, but they are still on about 40 times this year’s earnings, falling to 27 times in 2017. Not one to chase.
MY ADVICE Avoid for now
WHY High rating does not suggest much upside for now
Indivior
Shares in Indivior have been a good market since last summer and now are sitting not much above the level they were when the company was demerged from Reckitt Benckiser at the end of 2014.
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I said at the time that this was going to be a speculative investment, a specialist pharmaceuticals company with only one drug on the market, a treatment for opioid addiction in the United States. It has been trying to develop new methods of delivery for Suboxone, along with other compounds. Last week there were a couple of pieces of bad news. One of those Suboxone derivatives had to be abandoned, while there is a nine-month delay, for entirely technical reasons, for a compound for schizophrenia.
There are still high hopes for a monthly Suboxone treatment, but the main news flow has centred on legal action against rival producers. The first ruling could come any day now, while the first-quarter figures did show the drug continuing to hold market share.
The company is confirming earlier revenue and earnings guidance for this year. Off another 13½p at 147¼p, the shares sell on a fairly lowly eight times earnings and are best avoided by the prudent.
MY ADVICE Avoid for now
WHY Too many uncertainties over generic competition
And finally ...
It is probably not a great time to go seeking a new chief executive in the battered oil services sector and James Moffat, chief executive of Lamprell, and John Kennedy, the chairman, have agreed to extend their services until the end of the year so that a replacement for Mr Moffat can be found. They are largely behind the survival of Lamprell, which required a rescue rights issue, which was then followed by the downturn in the sector. Lamprell has emerged from this in good nick, but it is still an awful market.
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