The market could be forgiven for struggling to make sense of AMP’s (ASX:AMP) interim result today which include corporate largesse in the face of an underwhelming six-month performance.
In one breath the reincarnated 'grand-old-dame' of the ASX posted a -24.5% fall for the six months to 30 June (on the previous year) in underlying after tax profit of $117m, while in the next breath announcing a massive future capital return to shareholders.
While statutory net profit was $481m, (up 230% from $155m last year), the lion’s share of the windfall came from the sale of the company’s infrastructure debt platform, with $382m coming from “discontinued” operations and only $99m from “continuing” businesses.
With AMP's consensus underlying earnings missing estimates, AMP’s board chose for the fourth consecutive year not to declare an interim dividend.
The 173-year-old firm plans to return $1.1bn in capital to shareholders in the coming years following a string of asset selldowns.
Commencing immediately, the financial services company plans to return $1.1bn to shareholders through a $350m on-market share buyback, while an additional $750m in capital returns is earmarked for FY23.
Commenting on the return of capital, management advised the market that the $750m return is expected to comprise a combination of capital return, special dividend or further on-market share buyback.
To help put the magnitude of AMP’s planned corporate activity in context, the total capital return of $1.1bn planned through FY23 equals a whopping 29% of AMP's current market capitalisation of $3.8bn.
While this news would typically boost a share price, investors were having none of it today, with the stock down -0.43% two hours out from the open, after momentarily lifting higher.
Other highlights within AMP's interim result:
Mortgage book grew at 1.15 times the broader system
Profits in the challenger bank fell by around half to $46m
Flagship wealth management platform North reported an -$8m loss
Business from independent advisers increased by 49% to $758m
Documents lodged with the ASX claimed AMP took a “deliberate decision to slow” mortgage applications over the half, to protect margins and the quality of the loan book.
“While our profit has declined due to a more challenging environment, it is also a reflection of the deliberate actions we took ... to continue delivering competitive offers to customers and set AMP up for longer-term success,” CEO Alexis George noted.
Putting a brave face on today’s result, George defended the company’s competitive strength with the digitally enabled challenger bank demonstrating above system mortgage growth, while maintaining disciplined focus on credit quality.
While some may find it amusing, George noted that "disciplined cost savings” had contributed to earnings and the bottom line.
“AMP is entering its next era as a significantly simplified group, leading in wealth management and banking, and guided by a clear purpose – helping people create their tomorrow,” said George, who marked one year in the top job last week.
While AMP shares are up 8.8% over one year, since the damning Haynes royal commission five years ago, the share price has shed a grand -77%.
Consensus on AMP is Hold.
Based on Morningstar’s fair value of $1.36 the stock appears to be undervalued.
Based on the five brokers that cover AMP (as reported on by FN Arena) the stock is currently trading with -7.3% downside to the target price of $1.07.
While UBS’s initial reaction to AMP’s 1H result was mixed, the broker retains a Sell rating and a 90c price target, in light of weak operating trends.
Morgan Stanley has resumed coverage of AMP and notes that while recent sales of most of AMP Capital Investors operations reduce downside risks, they also take away the best growth opportunity.
The broker has an Equal-weight rating and $1.10 target price.
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