AMP Limited

AMP Details

AMP Limited (ASX: AMP) is a leading  wealth management company with a portfolio of businesses including  superannuation, pensions, banking and investment products   in Australia and New Zealand. The market capitalisation of the company as of 16^th July 2021 stood at ~A$3.62 billion.

Result Performance (Year Ended 31 December 2020 – FY20)

The company reported the profit attributable to shareholders for FY20 at $177 million against a loss of $2,467 million in the prior year. However, on an underlying basis, the company’s underlying NPAT for the year declined by 33% to $295 million which reflects the impact of COVID-19 on the economy and businesses and increased operating costs and service to clients. The earnings of the group was impacted by decline in asset under management (AUM) in Australian wealth management (AWM) by 8% and AMP Capital by 7%. However, AMP bank maintained its position with $20.2 billion residential mortgage book in a competitive lending market. The year witnessed NZWM AUM increasing by $128 million to $12.4 billion.   

Key Data (Source: Company Reports)

Q1FY21 Update:

The company, on 22 April 2021, provided an update on Q1FY21 AUM and cash flow with Australian wealth management (AWM) assets under management increasing by $1.6 billion to $127.5 billion, thereby, reflecting improved investment markets.  There was net cash outflows of $1.5 billion for AWM in Q1FY21. AMP Bank’s total loan book increased by $0.2 billion to $20.8 billion during the quarter.  AMP Capital AUM for the quarter reduced by 1.7% to $186.5 billion reflecting net cash outflow.  However, in addition, AMP Capital reported net cash outflows of $1.3 billion in Q1FY21, driven by fixed income outflows as well as planned divestment of assets.

Response to ASIC Announcement:

As per the release dated 16^th July 2021, AMP has welcomed the confirmation from ASIC that it would not take action on the issue pertaining either to processing or reporting of the historic fees for no service conduct linked with AMP’s Buyer of Last Resort (BOLR) arrangements. This has come as a big relief to the group.

Outlook:

The company’s Q1FY21 performance reflects on strong improvement in market conditions. The increase in its asset under investment in its wealth management businesses suggests continued improvement in investment sentiments. Besides, AMP Bank too, has performed solidly in a highly competitive market. In the meantime, the company continues to make progress on its transformation strategy to become a simpler and client-focused business.

Key Risk:

Due to the COVID-19 pandemic, the company had a significant impact on its financial and operational performance, and concerns about its continuance in one form or other would continue to affect investors’ sentiments, thereby, affecting the overall performance of the company. Besides,  any delay  in regulatory approvals may lead to financial losses.

Valuation Methodology: Price/Book Value Based Relative Valuation (Illustrative)

Stock Recommendations:

The company’s net income witnessed a turnaround from loss in FY19 to profit in FY20. Its long-term debt to total capital at the end of FY20 stood at a decent figure of 15.3% as compared to 25.8% in FY19.

We have valued the stock using a Price/Book Value multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a slight premium to Price/Book Value Multiple (NTM) (Peer Average) considering turnaround in the net profit.

Considering the aforesaid facts and current trading levels, we give a “Buy” recommendation on the stock at the current market price of A$1.100 per share, down by 0.901% on July 16, 2021.

Technical  Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock from the low of $1.00 bounced back close to its previous high, and from there it entered into a broader downtrend, driving down the price to the ongoing week’s low of $1.09, which finally closed at $1.10 with a moderate loss recovered. The technical indicator RSI with a reading around 37 and a flattish curve at the end, suggests flattening of weak momentum for the stock.

Going forward, the stock may have resistance around the level of $1.310 whereas support could be around $0.900.

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 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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 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 unfavourable movement in the stock prices

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