AMP | OBSERVATIONS, page-82

Just a quick update for those that might be interested as a follow up from the last investor day.

This is where I think AMP is at……

And this need not be taken as a suggestion to buy or sell.
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I personally own, and keep buying at these levels, because I’m comfortable as a long-long term owner.

But for those more concerned with short-term results, or having a need for near-term liquidity, it may well not be a sensible buy.

It really depends on your timeframe and appetite for owning the underlying assets vs one’s short-term view on the price movements.
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One way to think of AMP at the moment now is by asking two questions:

What does one get?

1. AMP Limited

There are different viewpoints as to the attractiveness or robustness of the underlying assets in the this business.

I happen to think they are the type of assets I like to own.
I also think they are finally operated by people I’m pretty comfortable with running the assets.

I think there is decent upside from AMP finally addressing the underlying losses within the advice business.

Enduring value here is around the $3bn mark. Based on 10x pretty clean cash earnings power across the remaining business (Bank, Wealth, NZ, Clamp)

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2. PMCo

Here you get a decent asset.

Which will be pretty unique asset to own on ASX, ie real assets fund manager.

At absolute bottom of cycle earnings due to recent association with the shambles that was the FDF era.

Initial value here is around the $1.5bn-$2bn mark. (I expect a few years out will be closer to the $3-$4bn mark once they get the ball rolling with new raisings that can practically only come following the demerger.
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Why might it be priced as it is?

I suspect there is still sufficient doubt about AMP’s ability to stem the losses within the advice.
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Likewise, there is still doubt about the ability to rip more costs out of both businesses following the de-merger.
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The flipside for the doubt about the possible upside in AMP, is that the market has fully priced in the downside risks at AMP. As there have been no shortage of examples where AMP has fulfilled the worst fears any one might have. And I contend that these risk are still fully priced in, yet the prospect that things might get somewhat better are not reflected at all in the price.
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Is there any prospect of a near-term recovery or change in perception?
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I’d say not. Does that mean I won’t keep building up my stake at these levels, no.
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What would be required for a chance in perception and ultimately a change in valuation?
Results. Performance. And more results.
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AMP has to prove to people that they are worth owning. After the circus that has been the last few years, they will not be given any benefit of the doubt.
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The merits of an investment like this, really depend on the individual.
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Twice in recent years, I’ve bought an asset, only to see it more than halve in price, then I’ve kept building my stake, often at lower lows, only then make exceptional all-in absolute returns over subsequent years.
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Take NZM as an example. Everyone said news was toast. They were on their way out, with no growth options etc etc.

I started buying in the mid 50c’s. I kept buying on the way down, over a period of years. Then I ended up buying heavily around the 20c mark, more than quadrupling my initial (incorrect purchases at that point in time) and now it sits at high 1.30s, has paid a decent dividend and is about to embark on a buy-back. Was I wrong for a few years? I guess so, depends how you look at it over the fullness of time.
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Will AMP do similar? I doubt it. Will returns from here, across the two assets one ends up owning be reasonable? I expect so, but let's wait and see.