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On Wednesday, Citi analyst Nicholas Herman adjusted the price target for Abrdn Plc (ABDN:LN) (OTC: SLFPY), increasing it to £1.72 from £1.40 while maintaining a Neutral rating. The revision followed Abrdn’s announcement of its full-year 2024 results, which led to an 8% rise in the company’s shares, even as the broader market trended downward.
Herman noted that Abrdn’s new financial targets for fiscal year 2026 were more optimistic than anticipated, and the additional information provided was aimed at giving investors a clearer perspective on the company’s medium-term prospects. He highlighted that the primary concern for investors is Abrdn’s capacity to maintain cash margins and achieve its self-help objectives, which include ongoing cost reductions without negatively affecting revenue growth.
The analyst acknowledged that while the scenario is possible, given the scarcity of similar success stories in the industry, investors may remain skeptical until Abrdn demonstrates consistent progress. Herman described Abrdn as a "show-me" story, indicating that the company needs to prove its strategies are effective.
Despite the positive reception to the recent financial results, Herman pointed out that at a 10 times two-year forward price-to-earnings (P/E) ratio, Abrdn’s valuation appears fair. He elaborated that this valuation implies a 15 times P/E for Abrdn’s Adviser and ii businesses. Herman further mentioned that to justify an equity total return (ETR) greater than 15%, a cost of equity (CoE) of approximately 12.5% would need to be factored in, which seems generous for a wealth and investment business that operates with a cost-income ratio around 80%.
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