Deutsche Bank has downgraded abrdn to "sell" and highlighted concerns around the asset manager's cost-saving plans.
The downgrade from "hold" was revealed in an analyst note published yesterday (14 September), just two weeks after abrdn dropped out of the FTSE 100.
The bank said it is now taking a "more cautious stance on several fronts" towards abrdn and has cut its price target by 23% from 175p to 135p, adding that accelerating stake sales will not offset wider headwinds faced by the company.
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The report said: "We have been cautious on abrdn for a while [and have] reflected on the numbers and see even further downside risk to the shares from both an earnings and capital perspective.
"We think the earnings are unlikely to turn around over the next six to twelve months, barring a sizeable market recovery."
Commenting on abrdn's recently announced cost-saving strategies, DB said questions remain around some of the proposals put forward.
It said that while the group has achieved some effective non-core disposals, the market is increasingly concerned that future disposals may result in the loss of high-margin or high-growth revenues - effectively offsetting any potential cost savings over the long-run.
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Meanwhile, in response to abrdn's plans to consolidate funds, the bank argued that while this should reduce admin costs, it believes there "could also be some revenue hit from shutting down certain funds".
It added that while reducing headcount and streamlining operations is a sensible approach, it can be timely and can come with "initial friction".
DB also labelled the company's dividend as "unsustainable" and said it is cautious around the value of excess capital locked within the Indian stakes, as it does not believe all proceeds will be returned to shareholders.
"Of the proceeds kept within the business, we think there could be a risk they will be used to fund restructuring rather than value-accretive strategies," it added.
This is the latest in a run of bad news for the Edinburgh-based fund group, which has seen its share value fall by almost half over the past year. Nearly 18 months after its rebrand, the firm's half-yearly report revealed that profits were down 18% compared to the same period last year, in addition to IFRS tax losses of £320m.
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DB noted that the overall relative performance of abrdn's funds weakened during the first half of 2022, with one-year performance declining consistently since 2020.
"The picture is even more stark in the equity funds, which have seen a decline in the percentage of outperforming funds from 72% in 2021 to 51% in H1 2022 (on a three-year basis)," it said.
abrdn's share price fell by more than 4% after the downgrade on 14 September. As at 2.45pm today, it had risen 0.85% on yesterday's closing price.
