Shares in banking and investment company AMP Limited have been taking a beating so far in the past 12-months, with shares already down ~20%, so this begs the question, will AMP Shares recover in 2021?

Should I Buy AMP Shares – About

The AMP group’s business is divided into three areas:

AMP Australia (wealth management and bank): Provides wealth management and financial services, also has a banking segment called AMP bank which is a deposit-taking institution.

AMP Capital: AMP announced the intention to demerge AMP Capital’s Private Markets business, consisting of infrastructure equity, infrastructure debt and real estate. The demerger will create two more focused businesses in AMP Limited and Private Markets, better equipped to pursue and allocate capital to distinct growth opportunities and realise efficiencies.

New Zealand wealth management: Encompasses the wealth management, financial advice and distribution business in New Zealand.

AMP Group Core Segments

AMP LTD Share Price

Shares in AMP have fallen -76% over the 5-year period and are currently down over the past year ~20% to trade at today’s share price of $1.10 per share and a market capitalisation of $3.7billion.

AMP LTD Share Price Facts

AMP LTD Share Price$1.10 per share
AMP Market Cap$3.7 billion
52-week range$1.0375 – $1.77
Dividend Yield0.6%
AMP LTD Share Price Facts

AMP ASX has the 52-week range of $1.0375 – $1.77 and is currently trading about 10% from the bottom end of the range.

AMP Dividend

No ordinary dividends were declared for the period ending FY20 and this trend has continued for H1 21.

A special dividend was however declared in FY20 for a value of $0.10 per share. This took the companies dividend yield to be ~1% over the FY20 financial year.

AMP Historical Dividend
AMP Historical Dividend

AMP ASX was paying a regular dividend from 2009 up until early 2019. The group suspended regular dividend payments since February 2019. Key dates on the AMP dividend and future financial events can be found in the companies investor centre.

The board has resolved not to declare an interim 2021 dividend. The board continues to maintain a conservative approach to capital management to support the transformation of the business.

The capital management strategy and payment of dividends will be reviewed following the completion of the demerger in 1H 22.

AMP Dividend Comparision
AMP Dividend Comparision

As AMP does not currently pay a dividend other financial companies are paying a higher dividend yield at current.

AMP Recent Insider Transactions and Ownership

Company insiders seem to be very confident in the group’s shares at around ~$1.10 per share. Company directors have purchased over $300,000 of shares since July 2021.

DateDirectorAmountPriceValue
25/08/21Michael Sammells+40,000$1.103$44,120
24/08/21Andrea Slattery+27,500$1.083$29,782
18/08/21Kathryn (Kate) McKenzie+60,000$1.07$64,200
01/06/21Debra Hazelton+89,286$1.12$100,000
10/05/21Andrea Slattery+27,000$1.095$29,565
07/05/21Kathryn (Kate) McKenzie+60,000$1.08$64,800
AMP Recent Insider Transactions

Shares in AMP are majority-owned by the general public and institutions at 61.7% and 36.7% respectively. Ownership stakes from private companies and company insiders make up less than 2% of the ledger.

AMP LTD Ownership Breakdown

AMP Shares Fundamentals

AMP Shares Income Statement 1H21

AMP delivered a slight revenue reduction in 1H21 when compared to the preceding period on 2H20, this is also down on the prior comparable period of 1H20 when the group delivered a $1,128million revenue result.

AMP H12021 Income Statement
AMP H12021 Income Statement

Falling out the bottom line was a $146million Net Profit After Tax (NPAT) this is also down by 28.1% compared to the prior comparable period.

AMP Shares Balance Sheet

AMP Limited has $2.25billion of cash and cash equivalents on their balance sheet, with total equity attributable to shareholders at $4.3billion.

The group has a price to book ratio of 0.83, which suggests it may be undervalued in comparison to its book value.

AMP 1H21 Balance Sheet
AMP 1H21 Balance Sheet

Will AMP Shares Recover?

Restructuring and Demerger of AMP Capital

AMP’s reputation took a hit at the banking royal commission in 2018 when it was found to have charged fees to customers for no service, along with other misdeeds.

AMP is currently in the process of restructuring selling their GEFI (Global Equities and Fixed Income) Business to Macquarie Bank. The group also plans to separate their Capital Private markets business (Private Markets) from their core wealth management and banking segment AMP Limited. The full demerger is on track for completion in Q2 2022 and the formed entity is expected to list on the ASX.

AMP Separation of AMP Limited and AMP Private Markets
AMP Separation of AMP Limited and AMP Private Markets

AMP Market Share

The company in their HY21 report to the market also included some interesting numbers on Market share vs the competition and provided this against a benchmark from March of the preceding year.

The group according to their report mentioned that they were number one in market position for superannuation in both AU and NZ and total retain managed funds in AU. The group was also the second-largest player in corporate superannuation in AU and number one in NZ.

AMP Market Share Per Product
AMP Market Share Per Product

AMP Competitive Analysis

In our opinion, AMP seems to offer a very similar product range to what Macquarie Group provide. We will also add Magellan Financial Group into the mix, however, MFG differs from AMP substantially in many ways.

Price to Earnings Comparision of AMP, CBA and MQG

Whilst this is not a comprehensive comparison it will provide some starting points for additional due diligence on the company. (Numbers are as close as practical to comparable periods for each of the companies)

AMP LimitedMacquarie GroupMagellan Financial Group
FUM/AUMA$256bA$554.9 billion$103.7 billion
Market CapA$3.7billion$61.1billion$8 billion
Deposits$16billion$77billionn/a
Residential Loan Book$20.6billion$74.4billionn/a
AMP Competitive Analysis

AMP Limited Share Buyback

The announced on-market share buy-back of up to A$200m is now complete, concluding on 30 June 2021, with the deployment of A$196m of capital to repurchase and cancel 170.5m shares.

The share buy-back and subsequent cancellation of shares have the effect of inflating the companies EPS even though the group delivered a lower EBITDA than preceding periods. The group delivered an EPS result for 1H21 of 5.3 cents per share as compared to the prior comparable period on 1H20 of 4.3 cents per share.

Will AMP Survive?- Prophets Take

Whilst the shares have fallen approximately 80% over the past 5-years and are down 20% over the past 12-months APM shares may appear to be on the cheaper side, however, it would take a brave person who fully understands their position to pick up shares in AMP. Especially ahead of other rival wealth managers such as Macquarie and Magellan.

Company Insiders such as Debra Hazelton and Michael Sammels seem to have no problem buying shares around the $1.10 mark, however, they likely understand the business far better than we do (at least we would like to hope).

It’s always important to invest within your circle of competence and this is certainly not in ours for the moment.

We will be staying away from AMP shares, for the time being, happy with our holding in our ASX200 ETF (VAS).

Whilst it seems the company is decently capitalised to withstand a few more beatings yet and they have a market-leading position in a number of sectors through Australia and New Zealand, we do not fully understand this business in enough detail to warrant making a sizeable bet.

There is also speculation brewing around a potential class action, whilst the scale of any potential action is purely speculative, we would want to see these rumours squashed prior to any further consideration.

Whilst there may be an upside here, our lack of understanding and the perceived risk on this stock is not worth the reward to Prophet and we will be more than happy with our portion in VAS.

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