Aberdeen managers have many assets

Jan 25 2010 By Andrew Miller, The Journal

Aberdeen Asset Management - We are initiating coverage of Aberdeen Asset Management with an outperform recommendation. The asset managers have performed well in 2009, on the back of rallying markets.

However, they still trade at a significant discount to historical averages, and given our broadly positive view on equity markets, we think there could be further to go.

Aberdeen trades at a discount to its peer group, reflecting difficulties in 2009, and uncertainty around the Credit Suisse acquisition. We think the outlook for the group looks good, and the recent underperformance provides a good entry point.

Investment performance in fixed income has improved sharply, reversing outflows in this area, and performance in equities remains solid. The group have delivered on cost savings programmes, which should help margins in 2010 as the group enjoys the benefits of the additional Credit Suisse revenue flows spread over a fixed cost base.

The recent dividend hike is encouraging, and the overall valuation undemanding, especially after consideration of the excess capital.

HSBC –We are raising our recommendation on HSBC Holdings (HSBC) to outperform and increasing our estimate of fair value to 900p. HSBC is emerging as a clear winner from the global credit crisis.

We believe that structural changes have created business opportunities for well-diversified, strongly capitalised and highly liquid banks.

For HSBC, we expect this to manifest itself in increasing market share and more resilient earnings growth. We feel it is well positioned for the new regulatory environment and can drive strong profit growth courtesy of its numerous competitive advantages.

Using a sum-of-the-parts valuation, we increase our estimate of fair value to 900p. At current share price levels, this leads us to increase our recommendation from neutral to buy.

Standard Chartered – A robust balance sheet and exposure to high growth Asian economies put Standard Chartered in a strong position relative to much of its European peer group. With Asian economies proving more resilient than Europe and the US, Standard Chartered’s operational performance has remained strong.

Growth has been largely driven by its ability to exploit market share opportunities within its wholesale banking business, and while we expect its revenues to remain strong in this division, growth will be more difficult to deliver.

Despite many positive characteristics, we feel that these are already reflected in Standard Chartered’s valuation, with the shares trading at 2.6x 2010 tangible book value estimates.

Based on a sum-of-the-parts valuation, our fair value is set at 1,570p. At current share price levels, this drives a downgrade of our recommendation to neutral.

Andrew Miller is regional office head at Barclays Wealth