AMP Limited (AMP) is a leading wealth management company with more than 3.4 million customers across Australia and New Zealand.

It is Australia’s largest retail and corporate superannuation provider, one of the region’s most significant investment managers, and is widely considered among the blue chip stocks.

After bouncing back in 2009 after a disastrous 2008, AMP encountered further challenges in 2010 on fears of a global economic slowdown.

However, the company is now looking at a stronger future on the likelihood of its latest bid for AXA Asia Pacific Holdings going ahead and on a recovering global and local economy.

Overcoming obstacles

In August, AMP released its 1H10 results. 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 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, which was up on a dividend of 14 cents a year ago.

One major 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.

Holding onto bid hopes

AMP’s stock has regained ground over its proposed $13.3 billion takeover of AXA Asia Pacific Holdings, announced yesterday.

Under the terms of the proposal, AXA shareholders will receive 0.73 AMP shares for every AXA share owned, $2.55 in cash, as a well as a final dividend of 9.25 cents per AXA share.

Importantly, AMP said that it will remain soundly capitalised following the merger, and would maintain its policy of paying out 75% – 85% of its underlying profit in dividends.

The deal is also expected to be EPS accretive from FY12 and will assume annual net synergy benefits of $120 million.

As a result, the combined AXA/AMP entity will be one of the stocks to watch in coming years.

Conclusion

Market interest in AMP has returned in spades owing to the group’s latest bid for AXA Asia Pacific Holdings, which looks likely to go ahead.

Investors are optimistic over the deal, and if it goes through as planned it is likely AMP will see significant upside.

Though AMP recently reported mixed 1H10 results, recovering global markets and strength for the Australian finance sector should also put the group in good stead going forward.

Following AMP’s renewed AXA bid, we would like to upgrade our rating on AMP to a Hold (from Sell) in anticipation of upside from the deal.

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