AMP Limited

AMP Details

Latest Quarterly Update on AUM and Cashflows: AMP Limited (ASX: AMP) is a wealth management company, which operates through three divisions: AMP Australia, AMP Capital, and New Zealand wealth management. The company has announced on 22 April 2021, the latest updates on its Q1FY21 Assets Under Management (AUM) and cashflows situation. The company has posted an increase in Australian Wealth Management (AWM) AUM to $125.7bn in Q1FY21, on the back of better investment markets. AMP has posted an increase of $0.2bn in its Bank total loan book to $20.8bn in Q1FY21, mainly due to growth in owner-occupied loans. Under the AMP Capital, the company’s AUM is reduced by 1.7% to $186.5bn in Q1FY21 as compared with $189.8bn in Q4FY20, mainly due to the sale of NZ REIT Precinct Properties New Zealand Limited and net cash outflows from public markets. AMP capital has reported an external net cash outflow of $1.3bn in Q1FY21, mainly due to outflow of fixed income.

Q1FY21 AUM Update (Source: Company Reports)

FY20 Financial Highlights: The company has registered a decline in total revenue to $2,331mn in FY20 as compared with $2,668mn in FY19, mainly due to a decline in AUM based revenue by 10.5% YoY in FY20. The company has registered a decline in EBIT to $371mn in FY20 as compared with $649 in FY19 on the back of a decline in revenues.

Key Risks: The company is engaged in providing wealth management services. The company need to consistently perform at par or above par from the benchmark performance. Any subdued performance may result in a decline in AUM for AMP. The company operates in a highly competitive environment. The company requires regulatory approvals to carry out its business efficiently. Thus, any delay in regulatory approvals may lead to financial losses for the company.                                                                                                                                                        

Outlook: The company remains on track to conclude its remaining client remediation program in 2021. The program is completed by more than 80% in FY20. The company is expecting $300mn of cumulative gross cost savings by the end of 2022. The company will keep the focus on reducing its costs to generate better returns for the investors. AMP is also looking forward to delivering a transformation program in Australian Wealth Management and concluding a potential JV for AMP Capital’s Private market business in FY21. 

Valuation Methodology: Price/Book Value based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, AMP has decreased by ~19.35% and by ~28.11% in the last three months. The current market capitalisation of AMP stands at ~$4.00bn as of 22 April 2021. The stock is currently trading below the average 52-week price level range of ~$1.105-~$1.970. On the technical analysis front, the stock has a support level of ~$1.024 and a resistance of ~$1.152. We have valued the stock using a Price/Book Value per share multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering a decline in AUM for AMP Capital in Q1FY21 and decline in total revenues for FY20. For this purpose, we have taken peers Clearview Wealth Ltd (ASX: CVW), Bendigo and Adelaide Bank Ltd (ASX: BEN), to name a few. Considering an increase in AWM’s AUM, increase in bank total loan book, decline in investment management expense, valuation, and current trading levels we recommend a “Buy” rating on the stock at the current market price of $1.125, down by ~3.434% as on 22 April 2021.

AMP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

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