Well, people who are selling at the moment obviously have an agenda as it just doesn’t make sense when they are selling shares at a lose! So let them sell. Those who buy now will benefit in the long run.
Since Ares Management is in talks with AMP for a potential takeover bid of all of AMP’s shares for $6.4 billion, I did a quick valuation for IOOF based on AMP’s valuation.
During H1 2020, AMP Ltd produced an underlying NPAT of $149 million before impairment, if timed by two, gives a full year underlying NPAT of $298 million. If we use $6.4 billion takeover price divided by $298 million profit, Ares gives AMP $21.47 for each dollar of profit earned. In other words, Ares gives AMP a PE of 21.47.
IOOF produced a full year underlying NPAT of $128.8 million during 2020 financial year. When we apply the same valuation of $21.47 for each dollar of profit earned, it gives IOOF a valuation of $2.75 billion which translates to $4.23 a share.
The above valuation is based on earnings, we can now look at valuation based on Assets Under Management (AUM).
AMP Ltd has four segments of businesses under the AMP brands, namely AMP Wealth Management, AMP Bank, AMP Capital and NZ Wealth Management. From their reports, I can only see AMP Wealth and AMP Capital have AUM thus I will just use these AUM to do the calculations.
During H1 2020, AMP Wealth and AMP Capital produced $131 million underlying NPAT over a total underlying NPAT of $199 million for the whole group. When you apply 131 over 199 means AMP Wealth and AMP Capital contributed 65.83% of the profits for the group. Using this 65.83% times Ares’ valuation of $6.4 billion, we get a valuation of $4.2 billion for AMP Wealth and AMP Capital which have a combined AUM of $310 billion. This tells us that Ares gives AMP 1.35% for each dollar of assets under their management.
IOOF has $202.8 billion AUM at end of September 2020, when we apply 1.35% we then get a valuation of $2.74 billion which translates to $4.22 per share for IOOF. I must say this 1.35% is very conservative!
We also need to remember, by 30 June 2021 IOOF will have close to $500 billion AUM! When using the conservative 1.35% per dollar of AUM gives IOOF a valuation of $6.75 billion which translates to $10.40 a share.
In my opinion, the current SP is way undervalued! Please always do your own research whenever you buy or sell this share.
GLTA.
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