AMP Limited

AMP Details

Latest Business Update: AMP Limited (ASX: AMP) business is divided into three segments, which include AMP Australia (wealth management & bank), AMP Capital, and New Zealand wealth management.

• Delivery of Demerger and Strategy Update: On 30 November 2021, AMP provided an update on its demerger and growth plans for the two post-demerger businesses – AMP Capital’s Private Markets (AMP-PMC) and AMP Limited. AMP continues to deliver progressive operational separation of AMP-PMC. The rationale for the demerger is to enable the two businesses to direct their energies on respective markets.
• Expected Impairments for FY21: On 26 November 2021, AMP disclosed potential recognition of additional impairment charges of circa $325 million in FY21 results. The impairments are expected to influence capital of circa $220 million as shall be considered as a significant item against a statutory profit of FY21.
• Enforceable Undertaking with APRA: On 16 November 2021, AMP confirmed its superannuation trustees’ entry into an enforceable undertaking (EU) with the Australian Prudential Regulation Authority (APRA) in the matter of several concerns in its superannuation business. AMP expects that its remediation and rectification cost, concerning EU, shall pertain to a range of $40 million to $45 million.

Q3FY21 Operational Update

• Australian Wealth Management (AWM): The assets under management (AUM) stood steady at $131.2 billion, following improved investment opportunities. Net cash outflows stood at $1.4 billion, an improvement from $1.8 billion outflow in Q3FY20.
• North AUM: The north AUM expanded by $1.7 billion to $58.6 billion, accompanied by higher net cash flows of $1.0 billion, including $333 million inflow from external financial advisers.
• AMP Bank: Total loan book advanced by $0.3 billion to $21.3 billion in Q3FY21, primarily attributed to growth in residential owner-occupied loans.
• AMP Capital: AUM shrunk to $180 billion (H1FY21: $187.6 billion), manifesting an uprise in net cash outflow. AMP Capital experienced cash outflow of $2.4 billion from external sources, primarily being real estate funds, redemptions in public markets and partially offset by inflows from infrastructure equities.

Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges

AMP’s sequential involvement in demerger and divestment activities may dilute the company’s controlling power and concentrate exposure to countable markets. The business’s performance is highly prone to equity market movements, which have now turned extremely volatile, and frequent changes in regulations from RBA.

Outlook

• Australian Wealth Management: AMP expects margins to compress by 7bps in FY21 relative to FY20 due to pricing and simplification initiatives.
• AMP Bank: Competitive lending environment may exert pressure on revenue margins in H2FY21, partly offset by reduced deposit and other funding costs. However, loan growth momentum is anticipated to extend in H2FY21.
• AMP Capital: FY21 earnings are expected to stand below FY20 results. Performance fees and sponsor and seed investment returns are expected to remain subdued for H2FY21.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of AMP gave a negative return of ~47.126% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $0.885 - $1.750. The stock has been valued using the Price to Book Value multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering extensive concentration on divestiture activities and net cash outflows witnessed in Q3FY21. For valuation, a few peers like Challenger Ltd (ASX: CGF), Humm Group Ltd (ASX: HUM), Eclipx Group Ltd (ASX: ECX), and other have been considered. Considering the prudent liquidity position, bottom-line growth due to cost-saving measures, current trading levels, upside indicated by valuation, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.915, as of 07 December 2021, 10:45 AM (GMT+10), Sydney, Eastern Australia.

AMP Daily Technical Chart, Data Source: REFINITIV

Wisr Limited

WZR Details

Q1FY22 Operational Update: Wisr Limited (ASX: WZR) is engaged in the consumer lending space and underwrites personal loans and secured vehicle loans for 3, 5, and 7-year maturities. The company provides a Financial Wellness Platform comprising of consumer finance products.

• Revenue Update: WZR recorded $12.1 million in revenue, up by an astonishing 195% PcP and 25% sequential hike. The revenue structure has put WZR on a run rate approaching over $50 million for the coming year.
• Strong Funding and Capital Position: WZR has strongly capitalised with $30.7 million in unrestricted cash and $24.4 million in loan assets as of 30 September 2021. $225 million Wisr Secured Vehicle Warehouse onboarded on 11 October 2021, assisted by Revolution and NAP as mezzanine and senior funders, respectively.
• Loan Book Growth: As part of the $225 million deal, the existing Wisr secured vehicle loan of ~$127 million was transferred, building ~$127 million of additional capacity in the Wisr Warehouse to finance future growth in the personal loan book.

Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges

• Credit Risk: WZR’s lone of business is highly susceptible to credit and receivable risks, as a result, the company requires to divert energies towards assessing the credit quality of customers.
• Funding Risk: The company’s profitability has crucial dependence on its access to funds at favorable rates.
• Profitability Risk: Though WZR has been reporting decent revenue numbers, it faces profitability risk and must consider a turnaround soon to attain sustainability.

Outlook: In July, Wisr launched its major and first national brand campaign to promote Company’s brand image. Metrics post-campaign have assessed that Wisr was able to reach an outstanding 16.7 million Australians, substantially exceeding expectations. The Wisr Financial Wellness Platform has delivered sustainable growth with over 50,000 new profiles created In Q1FY22. WZR expects to witness surged demand in the personal finance market as lockdown impact lifts. With Wisr Warehouse facilities in operation, WZR stands in a strong financial position to push its medium-term target of $1 billion.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of WZR gave a negative return of ~21.154% in the past year. The stock is currently trading lower than the 52-weeks average price level band of 0.175 - $0.340. The stock has been valued using the Price to Book Value multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight premium to its peers, considering the significant uptick in loan originations, and favorable funding terms from warehouse facilities, etc. For valuation, few peers like Credit Corp Group Ltd (ASX: CCP), Money3 Corp Ltd (ASX: MNY), Humm Group Ltd (ASX: HUM), and others have been considered. Considering current trading levels, robust growth in revenues & loan origination, new funding warehouse facilities, favorable outlook, upside indicated by valuation, and key risk associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.200, as of 07 December 2021, 2:19 PM (GMT+10), Sydney, Eastern Australia.

WZR Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: - 

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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