Jefferies Downgrades Aberdeen to 'Hold': Rising Costs and Limited Upside Prompt Caution

Jefferies has shifted its stance on Aberdeen (LON: ABDN), moving from a "buy" recommendation to a more cautious "hold." This change comes in light of rising operational costs and a constrained upside for the stock after a notable surge in its value.

Interestingly, this downgrade arrives despite optimistic revisions for the company's 2026 forecasts, with a price target adjustment from 165p to 175p. However, Jefferies has also cut its projected earnings per share (EPS) for the 2025 fiscal year by 10%, primarily attributing this to the increasing cost pressures that have surfaced recently.

The stock had experienced a healthy 6% uptick to reach 190p prior to the announcement, marking a performance that eclipsed broader market fundamentals. In contrast, the asset management sector as a whole enjoyed a 22% surge in share prices over the past quarter, though earnings estimates took a slight dip, decreasing by 3%.

Jefferies pointed out that traditional asset managers are trading at roughly 11 times forward earnings again, raising concerns that further upward adjustments in valuations may face challenges without a considerable revival in net flows, especially within the retail segment that has been sluggish lately.

Furthermore, Jefferies conducted a revision of its sum-of-the-parts (SOTP) valuation for Aberdeen, estimating a share price of 175p, which includes a 10% reduction on its stake in Phoenix, a critical customer valued at £530 million. The evaluation also considers surplus capital pegged at £866 million while Tier 1 and Tier 2 debts total to £807 million.

For the operating segments, an 8x multiple was applied to the Investments and Adviser divisions, both of which have faced outflows. In contrast, the Interactive Investor segment received a more favorable 12.8x multiple, albeit with a 20% discount factored in. Collectively, this leads to a total operational value of £2.79 billion, with comprehensive valuation settling at £3.11 billion, or 175p per share.

Looking ahead, projected EPS for 2025 is now set at 11.75p, a decrease from 13.20p, indicating an 11% drop. The 2026 forecast sees a slight uptick to 14.05p, adjusted from 14p, and the 2024 figure remains stable at 15.02p. This positions the forward price-to-earnings (P/E) ratio at 16.2 for 2025, contrasting with 12.7 for 2024 and 13.5 for 2026.

Unless there's a significant turnaround in retail flows or other substantial catalysts, Jefferies believes that Aberdeen's stock may have limited potential for continued outperformance.