Ann: AMP Life sale and interim dividend update, page-37

AMP could present a value trap
AFR

"It's absolutely a value trap," said Tribeca Investment Partners lead portfolio manager Jun Bei Liu. "You’ve got a class action, you’ve got impairment and so many uncertainties coming up and it's reasonably certain that they will have to raise capital."The outflows were just enormous in the first quarter and the June quarter is looking at another $1.4 billion.

Those outflows won’t disappear for another year or so and even then we don’t know if the performance will turn around."In May, chief executive Francesco De Ferrari flagged a three-year turnaround strategy for the company although a firm recovery strategy is yet to be outlined by management.Some investors had suggested at the time the company's shares had bottomed out, however its price has dropped almost 20 per cent since."It does look cheap on a lot of metrics but it could be a value trap," said Wilson Asset Management portfolio manager John Ayoub."We still haven’t had a review from management and what we’re expected to do is take a leap of faith today based on limited information.
We’re hopeful of a clear strategic path in the short term but it's messy right now. We just don’t know what’s next."Mr Ayoub was awaiting further details of the strategy to understand where the company was positioned and how soon a recovery was possible."Big boats take a long time to turn around but AMP might now just be a small boat with a big turning circle," he said.Sell-side researchers were swift to drop their estimates on the company, recognising that while the shares were cheap, the outlook looked murky.

"While value metrics are well below historical levels, we believe earnings are unlikely to grow over the long term given retained ownership of its run-off Life business and structural margin headwinds in Wealth," UBS analyst Kieren Chidgey noted."In addition, advice remediation, NZ regulatory capital and litigation risks also limit value appeal."Shaw and Partners reduced its price target on the company from $1.80 to $1.50.

"The Resolution Life sale would have removed a low returning business from the care of shareholders and provided a much needed boost to capital," said senior analyst Brett Le Mesurier.
"Now, AMP is looking at another year of weak profits from that business and further potential capital imposts."Morgan Stanley equity analyst Daniel Toohey reduced his price target on AMP to $1.50, saying the life sale was critical to rebuilding the company but that any future negotiations would likely be on terms much less favourable to AMP.Macquarie reduced its price target but maintained its 'neutral' rating while Citi retained its 'sell' rating saying the market would wait for the company's future strategy set to be presented by CEO Francesco de Ferrari alongside its first half results on August 8.