Aussie Stocks – AMP Limited (AMP)
AMP Limited (AMP) is a leading wealth management company with more than 3.4 million customers across Australia and New Zealand. Aussie stock AMP is a popular blue chip stock and is one of the major movers on the ASX.
It is Australia’s largest retail and corporate superannuation provider, and one of the region’s most significant investment managers.
AMP offers a wide range of financial products and services, including: retirement savings and income; investments; superannuation; financial planning; insurance; and banking.
After bouncing back in 2009 after a disastrous 2008, AMP has encountered further challenges in 2010 on fears of a global economic slowdown.
The group released its 2009 results earlier this year, which failed to move market sentiment.
Today, AMP released its 1H10 results. The group’s closely-watched underlying earnings result was below market expectations, being impacted by higher insurance claims and a decline in profit from AMP’s mature business.
All of AMP’s divisions showed weakness in 1H10, except for its New Zealand division, and the group is forecasting continued investment market difficulty in 2H10.
Credit Crunch Cloud
Towards the end of 2007, AMP encountered problems, care of the high volatility flooding the Australian equity market.
AMP went into damage control in late 2007 and 2008 as its stock slumped, taking careful steps to maintain its “A”-range credit rating.
The company soldiered through the credit crunch by bypassing acquisitions in order to reduce debt and pay out capital returns to shareholders.
AMP looked ready to turn it all around last year, in line with the growth displayed by most companies (including finance companies) on hopes of a global economic rebound.
Renewed Investment Jitters
Coming into 2010, AMP’s stock became sluggish on renewed fears of a global economic downturn.
In February, AMP released its results for 2009, failing to move market sentiment much either way.
Net profit rose to $739 million from $580 million in the prior year, whilst underlying profit was down 5% at $772 million.
Revenue from ordinary activities came in at $10.92 billion, swinging from a loss of $10.97 billion the prior year on the back of net investment losses.
AMP kept its dividend steady at 16 cents per share, contributing to a result that both AMP and a major broker noted was roughly in-line with forecasts.
AXA Deal Dragging
Market focus on AMP has for a long time revolved around its bid for AXA Asia Pacific Holdings, which has also been a takeover target for other suitors.
In May, AMP said there is a long way to go in its proposed purchase of AXA. The company admitted to still needing final approval from Treasurer Wayne Swan, though the ACCC has not blocked AMP’s bid.
AMP is looking to AXA APH’s independent directors and minority shareholders for proposal support after the ACCC blocked National Australia Bank’s (NAB) counter-bid for AXA.
With today’s 1H10 results release, AMP failed to release any encouraging news on the proposed takeover.
The group noted that AXA still remains strategically attractive, though the market is of the opinion that NAB will eventually win AXA.
Underlying Earnings Aches
AMP today disappointed the market by reporting 1H10 results which fell short of expectations.
Net profit for the half rose 17.4% to $425 million on growth initiatives, and ahead of analysts’ forecasts for around $383.4 million.
Of more concern was AMP’s underlying profit result of $383 million. Though this was up from $367 million in the same half a year ago, it was below market expectations for around $420 million.
AMP declared a half dividend of 15 cents per share, compared to a dividend of 14 cents a year ago.
A deeper look into AMP’s results highlighted several challenges. All of AMP’s divisions showed weakness for 1H10, except for its New Zealand business.
Also evident was the impact of a government crackdown on fees in the domestic pension fund industry. As one of Australia’s largest pension fund managers, AMP has had to respond to the crackdown by rolling out new products.
However, the potential benefits of these new products will not likely be seen in the near-term.
AMP said that investment markets are likely to remain challenging in 2H10 and added it was too soon to give guidance for the full year.
The one upside was cost guidance. AMP expects costs in the Australian Financial Services division to rise just 3% in 2010, down from a prior forecast for 4%-5% higher costs.
Like many global equities – and not just those pertaining to the finance sector – AMP has seen its fair share of trials coming into 2010.
Renewed fears of a global economic slowdown has dragged on AMP, which is also battling a government crackdown on fees in the domestic pension fund industry.
AMP’s 1H10 results failed to impress investors today. The underlying earnings result was below analysts’ expectations. It is evident that AMP has suffered a difficult half on higher insurance claims and a decline in profit from its mature business.
All of AMP’s divisions showed weakness in 1H10, except for its New Zealand division.
Unfortunately, going ahead AMP expects to see further challenges. The company anticipates investment markets to remain troubling in 2H10, and for this reason AMP has declined to give specific full year outlook guidance.
AMP share price has suffered over the course of one year falling from as high as $6.97 to as low as $5.09 in yesterday’s session. However, if a break through below $5.00 key support is confirmed then further weakness may result.