AMP (ASX) Is AMP a good investment opportunity?

Originally posted by Richie2013: ↑

Is AMP a good investment opportunity? Here are the bull and bear cases.

Every investor dreams about picking the turnaround story that doubles in value. Is AMP a potential two-bagger or a falling knife?

It's hard to find much in the way of positive news around AMP – that's normally a good place for investors to start as it can imply most have already headed for the exits.

The recent sale of AMP's life insurance division was the last instalment of poorly received news with some in the market labelling it a "fire sale" or "AMPutation".

After the sale of AMP's life businesses, consensus earnings estimates are around 25¢ a share according to Skaffold software, which puts AMP on a current price earnings multiple of 10.

Skaffold, which models intrinsic value based on assumptions of future cash flows, has the share price trading at a small discount to intrinsic value.

What is often overlooked by investors is that AMP still has three key divisions: wealth management (platforms and advisers), AMP Capital (funds management) and AMP Bank.

AMP Capital has assets under management of $192.4 billion and about two-thirds of this comes from internal channels such as AMP-aligned financial advisers. This division is in fund outflow. The key question for investors is whether AMP can regain the trust of investors and stem fund outflows, or whether fund outflows are permanent.

AMP Bank has a lending book of about $20 billion and the loan book saw a small decline for the first time since 2015. This division carries the same risks as the other retail banks in the potential for bad debts.

Nathan Bell, portfolio manager at Intelligent Investor, says: "Within a few years of the recent AMP life disposal and the sale of its New Zealand wealth management business slated for next year, AMP could have around $1.5 billion of capital that could either be returned to shareholders or reinvested to grow earnings.

Incoming CEO Francesco De Ferrari [who starts on December 1] needs to increase the company's return on equity to 15 per cent to earn all his bonuses, so theoretically investing the money would increase earnings by $225 million, which in turn could see earnings per share move closer to 30¢ per share."

Potential share price

Bell suggests that if AMP was subsequently re-rated to 15 times earnings, assuming no deterioration or improvement from other divisions, the share price could be $4.50 (15 times 30¢ per share earnings). The dividend yield for investors with an entry price of $2.50 would also be attractive under this scenario.

The problem with finding investments that can produce such a high return at the tail end of a bull market is that these opportunities often come with "warts", and AMP's business units are under immense pressure, which is why Bell is eager to hear De Ferrari's strategy.

There are also suggestions De Ferrari will renegotiate his contract, as his bonus targets will be very difficult to achieve after the board's widely-condemned deal to sell its life business.

It is always useful to understand how senior management is incentivised and the incoming CEO receives a large incentive if the share price reaches $5.25.
Matt Williams, portfolio manager at Airlie Funds Management, is watching AMP closely but has rarely invested in the company.

He cites management's "revolving door" of management and a business with high fixed costs that is not really a leader in any of its market segments as reasons to be cautious. Airlie recently met with AMP management but remains on the sidelines.

Risks for AMP include De Ferrari not being able to restore the company's reputation, continued fund outflows, a financial market downturn that decreases fee revenue from funds under management and bad debts from the banking division – not to mention the outcome from the royal commission with respect to vertical integration and other issues.

The best investment decisions are often the ones that make investors feel the most uncomfortable and on that count AMP rates highly, given the uncertainties. The strategy from the incoming CEO is the next piece of the puzzle for investors to help determine whether AMP is a turnaround in the making or a falling knife.

https://www.copyright link/personal-finance/shares/bull-and-bear-case-for-amp-20181123-h18aar

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Without all the mambo jumbo

At $2.35 the stock is trading at exactly 10% return per share and funny enough it closed at that price today.....

I think that's a very good result, time to get back on track and grow this business.

The stock will do well this year when the royal commission is settled.

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(20min delay)
Last $1.11		Change -0.010(0.89%)		Mkt cap ! $2.913B

Open	High	Low	Value	Volume
$1.12	$1.13	$1.09	$11.97M	10.78M

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