4th Jun 2021 11:32
(Alliance News) - Moody's Investors Service on Tuesday affirmed the A3 long-term issuer rating, and Baa1(hyb) subordinate rating of Standard Life Aberdeen PLC.
The outlook remains stable.
Moody's noted the affirmation reflects SLA's "solid revenue scale, its broad product set and solid distribution capabilities, a strong balance sheet and moderate leverage.
"Net outflows and investment underperformance have weakened SLA's credit profile in recent years, but the company is starting to see improvement in both areas which, if sustained, will be positive for its revenue and margin outlook," the credit ratings agency added.
In 2020, SLA's net flow position significantly improved, Moody's noted, with the level of redemptions at their lowest level since the merger of Standard Life and Aberdeen in 2017, with its three-year investment performance improving to 66% of assets under management ahead of benchmark, compared to 60% in 2019.
"Under a new chief executive officer with unified brand and a clear strategic direction, Moody's expects the group to be able to arrest the consistent decline in its revenue driven by significant net outflows in recent years. This is notwithstanding some execution risk with redemptions still challenged in the UK and inherent pressures within the asset management industry," Moody's continued.
It added: "The affirmation also reflects the company's proactive management of its balance sheet which has allowed it to maintain a stable leverage ratio despite significant revenue contraction over the last several years. SLA's A3 issuer rating also incorporates the concentration risk via SLA's largest client, the Phoenix insurance group."
A key weakness, Moody's pointed to, is the "depth" of SLA's performance - which has seen fee-based revenue drop 13% in 2020 following declines in 2018 and 2019.
"Furthermore, the quality of earnings has reduced with adjusted operating profit - fee based revenue less costs - this will become the group's key performance indicator in 2021 - declining by 27% following the 36% drop in 2019, with the group relying even more on Phoenix's profit contribution. However, SLA should benefit from its focus on growing revenue especially in Asia, private markets, and the solutions business, and maximizing its operational synergies," Moody's added.
Shares in Standard Life Aberdeen were 0.7% higher in London on Friday at 280.30 pence each.
By Paul McGowan; [email protected]
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