The performance of the Standard Life (LSE: SLA) share price has been pretty underwhelming over the past three years. Even including dividends paid to investors, the stock has underperformed the wider FTSE 100 by around 10% per annum since 2017.
However, I think the stock is due for a rebound in 2021. There are a couple of reasons why this equity will finally produce positive returns for investors next year.
Standard Life share price recovery
There are also several reasons why I think shares in this asset manager have underperformed the market over the past few years. Its growth hasn’t lived up to expectations, management has been distracted, and investors have found better options elsewhere.
In my opinion, all of these factors can be traced back to management execution. When Standard Life and Aberdeen Asset Management merged, the two companies effectively kept their managers running side by side. This doesn’t seem to have been the right decision.
But now, a new CEO has been appointed. Stephen Bird has taken over replacing the legacy managers. He’s already starting to shake things up across the business. He’s instigated a full review of the operation and set out key operating targets.
I think this will give the company the direction it’s lacked for some time. With a new, focused CEO at the helm, Standard Life can concentrate on improving customer satisfaction and engaging with investors.
I think Bird’s efforts should start to take hold in 2021. It may be some time before we see the actions translate into profits, but investor sentiment should begin to improve if assets under management reverse their downward trend.
I don’t think it will take much for the Standard Life share price to move higher. At its core, the firm’s an attractive investment proposition. The stock offers a dividend yield of 7.6%, and management has been returning cash to investors with share buybacks as well.
What the company really lacks is growth. When this final piece of the puzzle’s in place, I reckon the shares could take off.
With that in mind, I’m optimistic about the outlook for the Standard Life share price in 2021. We should start to see the green shoots of a turnaround this year, and that could translate quickly into a rising share price.
Another option is the potential for mergers and acquisitions. Standard Life has said it’s willing to do deals if they complement growth. Many other companies appear to have the same view.
Asset management is all about scale, and rising costs have forced mergers across the sector over the past 24 months. Standard Life has already completed one large merger in recent years, and I wouldn’t rule out another. Combining with a business like M&G would give Standard Life vast economies of scale and further improve profit margins.
That’s just one avenue the company has to create value for investors in the years ahead.
The post Why I’m backing the Standard Life share price for 2021 appeared first on The Motley Fool UK.
Rupert Hargreaves owns shares in Standard Life and M&G Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020