Berenberg lowers target price on Standard Life Aberdeen

Analysts at Berenberg slashed their target price on global investment company Standard Life Aberdeen from 343.0p to 220.0p on Monday, citing dissonance in dividend and capital creation.

Berenberg said Standard Life did not generate "sufficient capital" to cover its dividend and stated that in the absence of "a material acceleration" in gross sales, it does not expect that to change "anytime soon".

The German bank said that as a result, SLA's 10% dividend yield was being maintained at the expense of its long-term sum-of-the-parts value and noted that material downgrades to its earnings expectations suggest the issue has been worsening.

"Understood in this way, it is clear that the group’s dividend is mostly being funded by disposals. Much of the benefit of SLA’s 10% dividend yield, therefore, comes at the expense of the group’s SOTP value. This may be understandable if the group was bridging a temporary period of low capital generation, but we are not convinced this is the case," said Berenberg.

Berenberg added that 2020 did "not look much better" for SLA, with management now expecting restructuring costs to be higher, and to continue for longer.

"Assuming two-thirds of the remaining restructuring costs are recognised this year implies SLA will generate c£110m of capital in 2020. Even stripping out restructuring charges, this implies underlying capital generation of less than £200m to fund a dividend payment of c£470m," said the analysts, which also reiterated their 'hold' rating on the firm.

"Our EPS forecasts decline materially as we incorporate current market weakness and the group's recent results."