Two ASX stocks that dropped - AMP Limited and Carsales.Com Ltd

AMP Limited

AMP Details
· Lower than estimated third quarter of 2016 performance coupled with weak guidance: AMP Limited (ASX: AMP) stock fell over 9.13% on October 28, 2016 as the group reported a lower than expected third quarter of 2016. The group witnessed a poor claims experience impacted by the challenging market conditions. IP claims experience performance was affected by lower than forecasted terminations and ongoing investment in claims transformation. Lump sum experience was also weaker affected by the rising incidence of TPD claims. The group’s Lapse experience was affected by the business mix and seasonality. Going forward the guidance is also weak. If the ongoing trends continue for the group’s Claims & lapse experience, experience losses for the Australian wealth protection business is forecasted to be $75 million for the second half of 2016. Capitalized losses and other one-off experience is forecasted to be (A$500 million) during the second half of 2016 while embedded value for Australian wealth protection is forecasted to decline by over A$1.0b (@5% discount margin) at FY 16 to recognize impacts from the expected best estimate assumption changes. AMP Profit margins are forecasted to reduce by A$90m during fiscal year of 2017 on the back of the assumption changes at 31 December 2016 and the signed reinsurance treaty. Management forecasts a reduction of profit margins of about A$5m in the second half of FY16.

· Recommendation: We give an “Expensive” recommendation on the stock at the current price of $ 4.68
 

Claims experience (Source: Company Reports) 

Carsales.Com Ltd

CAR Details
· Weak Financial and Related Services segment’s outlook: Carsales.Com Ltd (ASX: CAR) stock fell over 4.33% on October 28, 2016 impacted by the group’s weak Financial and Related Services segment performance while the group had reported 10% growth in FY16 revenue over prior corresponding period. CAR estimates a decent domestic core business performance during the first quarter for FY17 if the current market conditions persist. On the other hand, the group’s Financial and Related Services segment’s volume capacity witnessed pressure in the fourth quarter of FY16 and the group expects this weakness to persist even in the first quarter of FY17. As a result, this segment’s first half revenue and EBITDA would be subdued against FY16 results. CAR stock fell over 7.7% in the last three months (as of October 27, 2016) and we believe the pressure to continue in the coming months.

· Recommendation: Trading at a higher P/E, we give an “Expensive” recommendation on the stock at the current price of $ 11.05


FY16 performance highlights (Source: Company Reports)

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