RBC upgrades Aberdeen Group to “sector perform” as earnings recovery strengthens

Investing.com -- Aberdeen Group PLC (LON:ABDN) has been upgraded to “sector perform” by RBC Capital Markets, with the price target raised to 195p from 140p, in a note dated Wednesday. 

The revision reflects improvements across its three core divisions and signals a more balanced outlook for the group following years of pressure on earnings.

The most noticeable change has come in Institutional & Retail Wealth (I&RW).

After eight years of persistent outflows that reduced revenues by 57% to FY24, the segment posted positive net flows in the second quarter of 2025, excluding liquidity. 

This marked a turning point for the business, which had been in decline.

Management described the pipeline as “good,” and the report noted that stabilizing revenues, alongside cost efficiencies, would support the return of earnings growth in the division.

The Adviser platform has also shown signs of recovery after a period of repricing and restructuring that lowered revenue margin guidance for FY25 to 27 basis points, down from 31bps in FY24. 

Although this adjustment weighed on short-term earnings, net flows have been positive for four consecutive quarters, with operational improvements attributed to service enhancements such as faster processing times and stronger customer support metrics.

Interactive investor (ii), Aberdeen’s direct-to-consumer platform, remains the strongest growth driver. The platform recorded 8% annual organic customer growth and steady contributions from treasury income, which have been supported by higher interest rates. 

New initiatives, including the managed SIPP, ii 360 trading platform and ii Advice service, are expected to bolster growth further. 

Customer numbers rose 9% year over year to 461,000 in the first half of 2025, while assets under administration grew 9% to £90.7 billion. Net flows from ii climbed to £4 billion, up 29% from the previous year.

At the group level, adjusted operating profit forecasts were raised by 7% for FY25, 6% for FY26 and 6% for FY27. 

For FY26, RBC forecasts operating profit of £271 million, below the company’s target of more than £300 million but broadly in line with consensus expectations. 

The valuation is now supported by Aberdeen’s year-to-date total share return of 49%, with the stock trading around 14 times forward earnings, in line with its five-year average and peer multiples.

While progress has been made, the brokerage flagged that uncertainty remains.

Risks include heightened competition in both direct-to-consumer and adviser markets, potential reallocation of cash assets to other channels that could reduce revenues, and the company’s comparatively higher debt levels. 

Opportunities include a rebound in equities performance, potential new insurance partnerships, and further cost savings under a new chief financial officer.