Should you buy AMP after its earnings? What the brokers say now

Results overview:

Key metrics:

• Underlying Net Profit After Tax (NPAT) +5.4% to $118 million vs $112 million previous corresponding period (PCP)

  • Advice -$15 million (Consensus: -$16.0 million)

  • New Zealand wealth management $17 million (Consensus: A$17.3 million)

  • AMP Bank $35 million (Consensus: $32.1 million)

  • Platforms $54 million (Consensus: $47.5 million)

• Assets under management (AUM) +4.5% to $139.8 billion

  • Platforms +5.1% to $74.7 billion

  • Superannuation & Investments +4% to $54.0 billion

  • New Zealand +2.8% to $11.1 billion

• Other income:

  • Net interest income $163 million (Consensus: $161.5 million)

  • Strategic partnerships $37 million (Consensus: $34.2 million)

  • Other $51 million (Consensus: $61.0 million)

  • All “Consensus” estimates as per Street Account consensus.

Highlights:

• Results showed turnaround strategy is progressing well, despite losses being booked from selling down of loss-making Advice business.

• On Advice restructure, market particularly liked news of advice licensees and support services business to Entireti, and sale of 16 minority stakes in advisory practices to AZ Next Generation Advisory – as these will remove a significant portion of the losses

• Broadly, results were considered to be better than expected, particularly with respect to costs and execution of strategic repositioning of business segments.

• Platforms and Superannuation divisions were key standout performers

• Banking segment profitability fell substantially ($35 million vs $57 million), but this was better than expected due to net interest margins contracting less than expected. However, competitive pressure in the industry remains

• Second half guidance pointed to further cost savings (from $690 million to $660 million), and ongoing strategic transformation.

Broker response

Citi

Rating: BUY | Price target: $1.25

Views:

• Better than expected underlying NPAT on cost outs and successful execution of turnaround strategy, particularly divestments in Advice.

• Notes better than expected performance with respect to outflows at Superannuation and Investments.

• In banking, net interest margins Impressed.

• Expresses positive views deals being done in Strategic Partnerships.

Jefferies

Rating: BUY | Price target: $1.55⬆️ vs 1.32

Views:

• Banking division reported better than expected performance, but industry is highly competitive, and challenges remain.

• Views sale of loss-making Advice business as a positive, demonstrates progress on turnaround.

• Impressed with costs performance, notes AMP is on track t o meet revised target for H2.

• Views new Strategic Partnerships as a better way to participate in the advice sector.

JP Morgan

Rating; NEUTRAL | Price target: $1.20

Views:

• Agrees that AMP is on track with its turnaround strategy, notes restructure of Advice division, Strategic Partnerships.

• Costs performance was better than expected, this was the main driver of the better profit result.

• Banking division beat on margins, this is encouraging, but the sector remains challenging.

• Watching closely signs of margin compression, expectations largely focussed on executing on continued cost savings.

Macquarie

Rating: NEUTRAL | Price target: $1.26⬆️ vs $1.16

Views:

• Most impressive performance was from Platforms & Superannuation divisions

• On going restructure appears on track as sell down of Advice is expected to contribute to substantial ongoing cost savings and operational efficiencies.

• Banking division delivered better than expected performance, encouraging resilience, but challenges remain.

• Broker points out AMP’s strong capital position could assist in delivering enhanced shareholder returns, but continued progress on cost reductions is critical.

Morgan Stanley

Rating: OVERWEIGHT⬆️ vs EQUAL-WEIGHT | Price target: $1.48⬆️ vs $1.29

Views:

• Commends management on strong execution of turnaround strategy, cost reductions, and managing margins and assets under management flows

• Believes AMP offers compelling value after results

UBS

Rating: SELL | Price target: $1.07⬆️ vs $0.98

Views:

• Strong NPAT improvements in platforms and superannuation attributed to effective cost control and AU million growth.

• Selling the advice business is expected to yield cost savings and boost operational efficiency.

• Banking division shows resilience with stable NI million; moderate loan growth is anticipated.

• Strong capital position and cost-out targets signal potential for improved shareholder returns.

Broker consensus changes

AMP broker consensus changes

To obtain a broker consensus rating, I like to assign a value of +1 to any rating better than HOLD/NEUTRAL/MARKETWEIGHT, 0 for HOLD/NEUTRAL/MARKETWEIGHT, and -1 to any rating worse than HOLD/NEUTRAL/MARKETWEIGHT. I associate an average rating value of greater than 0.5 as a BUY consensus, values between 0.5 and -0.5 a HOLD consensus, and values less than -0.5 as a SELL consensus.

Using this method, AMP’s average rating value of 0.43 (up from 0.29 prior to its results) earns it a consensus HOLD rating.

AMP’s consensus price target rose to $1.29 from $1.21. This implies a slender 1.1% upside based on the price at the time of writing of $1.28.