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The end of extraordinary returns for Aberdeen?

The end of extraordinary returns for Aberdeen?

Aberdeen Asset Management has been at the forefront of the rally in asset managers, but could its double acquisition put the brakes on its stunning run?  

The Scottish-based fund manager surprised the market with news it had acquired New York asset management firm Artio Global Investors and private equity business SVG Advisers for £112 million and £17.5 million respectively.

Aberdeen chief executive Martin Gilbert (pictured) offered a compelling rationale for the Artio buy, which was sitting on an £87 million cash pile. He told the stockmarket: 'This transaction is in line with Aberdeen's strategy of undertaking infill acquisitions that will assist with growing our business organically. 

'It will be of benefit to our North American business, a region we view as a key growth market for Aberdeen.'

Prior to this, Gilbert had indicated the company was focused on organic growth since it completed the acquisition of RBS Asset Management in 2010, the last in a series of purchases dating back to the 1997 buy of Prolific Financial Management.

However, he hinted his firm was looking out for more acquisitions when the group issued its full-year numbers at the end of last year, while its global head of hedge fund, Andrew McCafferey, suggested Aberdeen could bid for a hedge fund firm.  

While Aberdeen has successfully integrated its numerous buys, the market had welcomed the more benign strategy and some analysts have been unsettled by today's news.

RBC Capital Markets analyst Peter Lenardos, who has an outperform rating on the stock, is among those: In a note he said: 'Aberdeen believes these transactions are "consistent with [its] strategy to identify suitable, quality businesses to complement [its] organic growth". 

'We disagree, especially with regards to Artio, which has been a company in crisis for years. Further, Aberdeen has indicated that its acquisition spree was complete, and that excess capital would be returned to shareholders through share buy buyback and/or special dividends. We believe that today's double acquisition will likely limit any extraordinary returns to Aberdeen shareholders.' 

Market reaction countered this view, with Aberdeen among the best performers on the FTSE 100 at 12.30pm, rising 10.4p, or 2.5%, to stand at 426.4p. The last time shares saw this level was in the run up to the dotcom crash in 2001.   

Canaccord Genuity was among those impressed by the deal with the broker wasting little time in upgrading its rating to buy and price target to 460p.

'We estimate that the current acquisitions will add another 4p to this year’s earnings on a pro rated basis for the next 10 months. We estimate the SVG earnings on a 2% asset margin and some allowance for performance fee earnings. This should move our adjusted earnings per share to 30p from our current estimate of 26p,' the broker explained.  

It added: 'Integration will as always remain a risk but Aberdeen in hindsight has been able to produce quick integration results. We give the benefit of the doubt to management here.'

Peel Hunt, which has a hold rating on Aberdeen, was also more appreciative of the deals.

Analyst Stuart Duncan told the market: 'Strategically, the deals look interesting, expanding the group's capability in both the US and private equity funds of funds. While small, the deals will be accretive to earnings and be expected to enhance the organic growth rate.'

He added: 'Aberdeen does deserve a premium valuation, given the rate of growth being delivered.'

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