Macquarie: AMP - Due For An Upgrade12/07/05Since February the...

Macquarie: AMP - Due For An Upgrade
12/07/05

Since February the AMP share price has tumbled over 15% from its high of $7.54 to finish trading at $6.37 yesterday. Macquarie believe that AMP represents attractive buying at current levels due to underlying earnings certainty, significant capital management upside and the strength of their core Australian wealth management business.

Upcoming result preview: On 18 August Macquarie are expecting AMP to announce an interim profit of $335.4m and a fully-franked dividend of 15c.

Capital Management Upside: At the release of their interim result, Macquarie believe that AMP management may also announce new capital management initiatives. Macquarie expect that AMP could return as much as $500m to shareholders either by way of a 26c special dividend or an on-market buyback.

AFS To Drive Upgrades: Management comments on the performance of Australian Financial Services (AFS), AMP’s largest operating unit, will be the potential driver of upgrades to full-year numbers. Last year AFS recorded operating margins of $475m and for the 2005 & 2006 financial year market consensus is for 0% to 2% growth. Macquarie is forecasting $495m in 2005 and $520m in 2006, implying around 4.2% growth. Macquarie remain very confident about these earnings forecasts and believe that current market forecasts are conservative and will likely result in earnings upgrades.

Macquarie recommendation: Macquarie maintain an Outperform recommendation on AMP and a 12-month share price target of $7.71.

Traders looking for maximum exposure to short-term movements in the AMP share price should consider the following equity warrants for a high-risk, high-return strategy.

Investors and traders looking for short to medium-term leveraged exposure to the AMP share price should consider Macquarie Instalments for a higher risk, higher return alternative to direct share investment.

Long term, more conservative investors looking for a simple, "set and forget" investment should consider Self Funding Instalments AMPSMU. SFI's are moderately geared, have no annual resets and a maturity date in up to five years.