Results update - AMP Ltd and AGL Energy Ltd

AMP Limited

AMP Details

During H1FY17, AMP has reported 4% yoy growth in Underlying profit at A$533 million, and net profit of A$445 million against A$523 million in H1FY16. Australian wealth protection earnings increased 11% to A$52 million (H1FY16: A$47 million), reflecting steps taken to stabilise the business, while sustained cost management on track to deliver 3% reduction in controllable costs (ex AMP Capital) by FY17. Net cashflows were higher in H1FY17, with stronger inflows from discretionary super contributions ahead of 1 July changes to non-concessional caps. The transition of corporate super mandates also supported inflows, with one mandate bringing more than 3,700 new customers to AMP. During the period, AMP paid A$1.3 billion in pensions to help customers through their retirement.


Business unit results; (Source: Company reports)

AMP announced a series of new reinsurance agreements to release capital from the Australian wealth protection business and reduce future earnings volatility. Releasing approximately A$500 million in capital from AMP Life (subject to regulatory approval), the new reinsurance agreements include: A new quota share agreement with General Reinsurance Life Australia Limited (Gen Re) to cover 60% of the NMLA retail portfolio (merged with AMP Life on 1 January 2017), an extension to the existing agreement with Munich Reinsurance Company of Australasia Limited (Munich Re) to cover 60% (up from 50%) of the AMP Life retail portfolio, a new surplus cover agreement with Gen Re to assist in managing risk and volatility in individual retail claims, and recapture of 35 existing reinsurance treaties, simplifying AMP’s overall reinsurance arrangements. The new reinsurance agreements will commence on 1 November 2017 and, when combined with the first tranche of reinsurance completed in 2016, effectively means 65% of AMP’s retail life insurance portfolio will be reinsured for claims incurred from 1 November 2017. We maintain an “Expensive” recommendation on the stock at the current price of $5.27


AMP daily chart; (Source: Thomson Reuters)

AGL Energy Ltd

AGL Details

AGL Energy Limited (AGL) reported Statutory Profit after tax of $539 million for the financial year ended 30 June 2017, compared with a Statutory Loss after tax of $(408) million in the prior financial year. The increase reflected strong underlying earnings growth, the non-recurrence of significant items that impacted the FY16 statutory result and a decrease in the movement in the fair value of financial instruments. Underlying Profit after tax, which excludes significant items and movements in the fair value of financial instruments, was $802 million, up 14% and above its guidance range of $720 million to $800 million. The increase was driven by the optimisation of portfolio to realise the benefit of recent conditions in the wholesale electricity market and by transformation efforts, more than offsetting higher commodity costs and a reduction in wholesale gas margins.

The Company has declared a final dividend of 50 cents per share (80% franked), an increase of 14 cents per share on the prior final dividend. The increase reflects AGL’s adoption in September 2016 of a dividend policy targeting a pay-out ratio of 75% of annual Underlying Profit after tax and a minimum franking ratio of 80%. Total dividends declared for FY17 are 91 cents per share (80% franked), an increase of 23 cents per share on FY16. AGL expects Underlying Profit after tax to be within the range of $940 million to $1.04 billion in the financial year ended 30 June 2018, reflects expected continued earnings growth in electricity business, a return to margin growth in gas business and an anticipated reduction in Eco Markets earnings. We give an “Expensive” recommendation on the stock at the current price of $24.52


AGL daily chart; (Source: Thomson Reuters)

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